As India moves towards a multi-sector regulatory regime, drawing lines within the regulatory framework and demarcating areas is of paramount importance, writes Gopal Jain.
Sebi vs. Irda; CERC vs. FMC and so on. This is not an IPL match but regulatory warfare. The game is not being played between parties or litigants but regulatory bodies. Unimaginable but true, as they fight a turf war where the battle lines are drawn. These matches will be played out in the court. This needs urgent intervention and remedial action, since 'neutral umpires' now need a third umpire!
This is a wake-up call to clearly define regulatory powers and draw a clear line, or turf wars will be the order of the day. This will lead to creation of more disputes rather than resolution of disputes!
As India moves towards a multi-sector regulatory regime, drawing lines within the regulatory framework and demarcating areas is of paramount importance. Each regulator must know his domain and must function within it. The present conflict between Sebi and Irda is a case in point.
Likewise, the war between the Central Electricity Regulatory Commission and the Forward Markets Commission set up under the CRA. In the past, the Telecom Regulatory Authority of India had questioned the jurisdiction of the adjudicatory body to entertain any challenge to regulations made by it.
Creation of the Competition Commission of India would lead to a similar situation and stand-off with sectoral regulators where there is interplay between competition issues and regulatory issues in that sector.
These issues centre round overlapping areas and interplay between the jurisdictions of two regulators. This goes to the root of the matter but is also the root cause.
These illustrations and examples highlight the need for clear separation of principles, as they give rise to jurisdictional issues, especially where there are overlapping matters. The way to resolve matters of jurisdiction is to provide for separation of powers. The test of jurisdiction must be that a sectoral expert (or specialist) should make way for the super specialist.
For example, in the fight between Sebi and Irda on Unit Linked Insurance Plans, which combine investment with insurance, if it is more of investment compared to insurance, it should fall within the jurisdiction of Sebi.
One regulator (in this case Irda) should yield to Sebi. In a given case one regulator will have primary jurisdiction whereas the other will have secondary jurisdiction.
Another example could be where a competition issue arises in the telecom sector. The telecom regulator should make a reference to the Competition Commission on that specific issue and must yield to the super specialist.
This will be in consonance with the governing principle of expert body regulation and adjudication that a forum or institution created for a purpose as opposed to a general purpose should decide the issue. This is similar to a legal principle where a specific law prevails over a general law.
This approach will ensure both legislative intent and maintain the sanctity of independent regulators, while avoiding a head-on conflict.
The Delhi High Court had considered a similar issue where a dispute was raised by the Trai against the Telecom Disputes Settlement Authority of India jurisdiction to hear appeals against regularisation framed by the Trai.
The Delhi high court held that though both are expert bodies, both act in different spheres, taking the nature of their expertise into consideration. The nature of Trai's expertise is more regulatory in nature, whereas the nature of TDSAT's expertise is more adjudicatory in nature.
There is no conflict as far as their role in the scheme of the Act is concerned. The Trai's role is to make regulations taking every stakeholder's concern into consideration, and as far as the legality of these regulations is concerned, it is the duty of TDSAT.
In America, in a dispute between the Securities and Exchange Commission and the Chicago Board of Trade, it was held that a regulator should not adopt the 'my way or the highway' approach because of the power it exercises. Power is given to the regulator for better administration of the sector. Such an approach will avoid a head-on conflict.
The State Load Dispatch Centre for the Southern Region is now caught in the crossfire between two governments - Karnataka and Tamil Nadu. Both have the interest of their respective state in mind, but it has put the SLDC (a statutory body) in a bind and it is now subject to contempt proceedings.
In the ultimate analysis this exposes the weaknesses in our regulatory architecture. In fact, we have not learnt lessons from the past. Several years ago, when two public sector companies were pitted against one another, the Supreme Court decided that this must first go to a Committee of Secretaries.
The Committee of Secretaries had to decide whether the parties could litigate. The committee did not have the legal expertise to decide and in most cases granted permission (after a long delay) to litigate. This increased litigation.
This highlights the weaknesses in the regulatory regime. Regulators have not been able to successfully deal with issues of regulatory overlap, as multiple operators are fighting turf wars. The irony is that there are more pressing regulatory issues which fall outside the mandate of any regulation.
Regulators should not become litigants, failing which their constituents, the stakeholders, will get caught in the crossfire. This can be resolved by plugging regulatory gaps and specifying the extent and scope of each regulator's jurisdiction.
Just as the constitutional scheme has a separation of powers between the legislature, the judiciary and the executive, the same principle must be followed between different sectoral regulators.
However, above all, regulators must have respect and regard for each other and each must give due weight to the opinion or recommendation of the other. Like the principle of comity of courts and comity of nations, there must be a comity of regulators. This will prevent conflicts and regulators from warring. Drawing clear Lakshman Rekhas offers the best ('Pareto optimal') solution in the Indian regulatory context.
The author is an Advocate in the Supreme Court