Finance and Industry Related Bodies
Reserve Bank of India
The Reserve Bank of India (RBI), a statutory regulatory body, was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The central office of the Reserve Bank was initially established in Calcutta (now Kolkata) but was permanently moved to Bombay (now Mumbai) in 1937. The central office is where the governor sits and where policies are formulated. Though originally it was privately owned, since nationalisation in 1949, it is fully owned by the Government of India.
Organisational Structure
The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act. The board is appointed/nominated for a period of four years. It is constituted of official directors and non-official directors. Official directors consist of the governor and not more than four deputy governors. Non-official directors are nominated by the government: ten persons from various fields and two government officials. Another four directors are taken, one each from four local boards. The functions of the board are general superintendence and direction of the bank’s affairs.
According to the preamble of the RBI Act, the basic functions of the RBI are to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
The RBI does financial supervision under the guidance of the Board for Financial Supervision (BFS), constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The Board is constituted by co-opting four directors from the central board as members for a term of two years and is chaired by the Governor. The deputy governors of the Reserve Bank are ex-officio members. One deputy governor, usually, the deputy governor-in-charge of banking regulation and supervision, is nominated as the vice-chairman of the board.
BFS through the audit sub-committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes deputy governor as the chairman and two directors of the central board as members. The BFS oversees the functioning of the Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues. Some of the initiatives taken by BFS include restructuring of the system of bank inspections; introduction of off-site surveillance; strengthening of the role of statutory auditors; and strengthening of the internal defences of supervised institutions.
Functions
The RBI:
- formulates, implements and monitors the monetary policy;
- makes efforts for maintaining price stability and ensuring adequate flow of credit to productive sectors;
- prescribes broad parameters of banking operations within which the country’s banking and financial system functions;
- maintains public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public;
- manages the Foreign Exchange Management Act, 1999;
- facilitates external trade and payment and promotes orderly development and maintenance of foreign exchange market in India;
- issues and exchanges or destroys currency and coins not fit for circulation;
- give the public adequate quantity of supplies of currency notes and coins and of good quality;
- performs a wide range of promotional functions to support national objectives;
- performs merchant banking function for the central and the state governments besides also acting as their banker; and
- maintains banking accounts of all scheduled banks.
Competition Commission of India
The Competition Commission of India (CCI) is responsible for enforcing the Competition Act, 2002 throughout India and to prevent activities that have an adverse effect on competition in India. It was established on October 14, 2003 as a statutory regulatory body. The Supreme Court, however, rejected the government’s choice for chairman of the CCI, saying only a judge could head the commission. Consequently, the Competition (Amendment) Bill 2007 was passed, and notified as an Act in October 2007. The Supreme Court held that two separate bodies—one for advisory and regulatory functions (CCI) and another for adjudicatory functions (Competition Appellate Tribunal or CAT)—should be created. This was duly incorporated in the Amendment of 2007. The CCI chairperson and members are selected by a committee. CAT would be a three-member quasi-judicial body headed by a sitting or retired judge of the Supreme Court or the Chief Justice of a High Court, and would hear appeals against any direction issued by the CCI. The CCI became fully functional in May 2009 with a chairperson and six members.
According to the Supreme Court the main objective of the Competition Act 2002 is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preferences. The advantages of perfect competition are three-fold: allocative efficiency, which ensures the effective allocation of resources, productive efficiency, which ensures that costs of production are kept at a minimum and dynamic efficiency, which promotes innovative practices.
To achieve the above objectives of the statute the CCI endeavors to do the following:
- Make the markets work for the benefit and welfare of consumers.
- Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of economy.
- Implement competition policies with an aim to effectuate the most efficient utilisation of economic resources.
- Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory laws in tandem with the competition law.
- Effectively carry out competition advocacy and spread the information on benefits of competition among all stakeholders to establish and nurture competition culture in Indian economy.
- The CCI has strong enforcement powers. It can impose a penalty of 10 per cent of the turnover of the cartel or three times the profits made by that cartel, whichever is higher. It can also be lenient to any accused who discloses useful information regarding the cartel.
Evaluation of Performance of CCI
On the basis of reports published in the print media CUTS International evaluated the functioning of the CCI during 2009-12. During these years, CCI has been coming down heavily on companies across all sectors. The mission of the CCI is to eliminate anti-competitive practices, such as cartels and abuse of dominance, as well as check anti-competitive mergers and takeovers to protect the interest of consumers and achieve economic efficiency. Apart from this, competition advocacy is another mandate on the CCI agenda. CCI has been actively probing sectors like real estate, entertainment, cement, petroleum, steel, travel industry, healthcare and education.
The CCI has been trying to act as a deterrent by instilling fear of hefty penalties amongst large companies that flout the competition provisions in order to create monopoly and dictate market prices that earn them huge rents. The CCI has also impacted the way regulatory agencies behave. For example, for years, customers had complained about pre-payment penalties to the RBI. However not much had been done to address the matter. When customers took the matter before the CCI, RBI fearing CCI’s entry as a competing regulatory agency pre-empted it by announcing its intention to end pre-payment penalties. Similar impact has been seen amongst other regulatory agencies.
Nonetheless, the CCI orders have often been criticised for lacking in economic reasoning particularly in cases related to NSE and DLF. The reasoning employed to define the relevant market, the preliminary step of any competition analysis has been a subject of much debate in these cases.
The penalties imposed by the CCI have been found to be excessive in the absence of proper guidelines for arriving at the appropriate amounts. Guidelines need to be formulated for computation of penalties to be imposed in cases, training is needed for CCI officials such that the orders reflect a logical approach. Furthermore, CCI staff also need better skills for sound economic reasoning.
It is hoped that the CCI will embrace these recommendations and benefits from the amendments while it continues to work actively to prevent anti-competitive practices, to promote and sustain competition in the market, to protect the interest of consumers and to ensure freedom of trade amongst participants in markets in India as envisaged under the Competition Act of India.
The CCI vs. Sectoral Regulators
The conflict between the CCI and the sectoral regulators arose from jurisdictional overlaps between the two. The legislative mandate of the sector regulator is to focus on the industry concerns within the terms of licences and policies issued by the government; frame regulations and consultation papers based on domain knowledge; and address economic issues like fixation of tariffs and issues relating to licences.
The objective of CCI is to play an overarching role as a market regulator across all sectors with the focus on anti-competitive behaviour of enterprises that may distort competition.
Sector rules and regulations are framed ex ante after consultation with industry and consumers, and reviewed from time to time for correction, whereas the market regulator, CCI, performs mostly ex post functions only to curb concentration in the market.
There is essential difference in their approaches as anti-competitive activities or any conduct that may harm competition usually involve collusion/cartelisation or strategies to concentrate in a particular market. Legislation with regard to sectors neither defines cartels or abuse of dominance nor provides the investigative mechanism to establish such economic irregularities. Therefore, the Competition Act, 2002 has overriding effect and envisages that it shall have jurisdiction in addition to and not in derogation of other laws.
The idea to oversee deals ex ante before they are executed is to pre-empt combinations that could potentially have an adverse impact on competition in the relevant market. The analysis of competition concerns in any market invariably requires an assessment of market power to see if the market dynamics would allow the parties to concentrate and deny market access to new entrants. Competition authorities intervene only for prevention of market failures, restriction or removal of anti-competitive practices, and promotion of public interest.
While the market dynamics keep changing with additional players and varied spectrum of services, the sector regulators cannot gauge the impact of harm or benefit of consolidation in the market until the terms of a deal are assessed with the market structure at that time. On the other hand, mergers and acquisitions control by CCI is based on size of business test (as opposed to market share). On triggering of the thresholds specified under the Competition Act, CCI will look at the terms of the deal and impact on market from prevailing circumstances.
Expressing his view on the perceived conflict between CCI and sectoral regulators, CCI chairman Ashok Chawla says “…. broadly, the market regulator is a generalist while the sector regulator is a specialist. It is a misconception that when there are sector regulators, there isn’t the need for another (market) regulator…” While both competition authorities and sector regulators share the common goal of protecting public interest and play complementary roles in fostering competitive markets and safeguarding consumer welfare, they employ different approaches and have different perspectives on competition matters.
Competition Appellate Tribunal
The Competition Appellate Tribunal, a quasi-judicial body, is a statutory organisation established under the provisions of the Competition Act, 2002 to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India. The appellate tribunal also adjudicates on claim for compensation that may arise from the findings of the Competition Commission of India.
The central government set up the appellate tribunal on May 15, 2009 having its headquarters at New Delhi. Besides, the chairperson, the appellate tribunal consists of not more than two Members to be appointed by the central government. The chairperson of the appellate tribunal must be a person, who is, or has been a judge of the Supreme Court or the chief justice of a high court. A member of the appellate tribunal needs to be a person of ability, integrity and standing having special knowledge of, and professional experience of not less than twenty-five years in, competition matters, including competition law and policy, international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which in the opinion of the central government, may be useful to the appellate tribunal.
The chairperson or a member of the appellate tribunal holds office for a term of five years and is eligible for re-appointment. However, no chairperson or other member of the appellate tribunal can hold office after he has attained the age of sixty-eight years or sixty-five years respectively.
The appellate tribunal is not be bound by the procedure laid down in the Code of Civil Procedure, 1908, but it is guided by the principles of natural justice and, subject to the other provisions of the act and of any rules made by the central government. The appellate tribunal has for the purposes of discharging its functions under the act, the same powers as are vested in a civil court under the Code of Civil Procedure. Every order made by the appellate tribunal needs to be enforced by it in the same manner as if it were a decree made by a court in a suit pending therein. If any person contravenes, without any reasonable ground, any order of the appellate tribunal, he shall be liable for a penalty of not exceeding rupees one crore or imprisonment for a term up to three years or with both as the chief metropolitan magistrate, Delhi may deem fit.
Financial Stability and Development Council
On the recommendations of Raghuram Rajan Committee in 1998 the Financial Stability and Development Council, a regulatory body was created in December 2010 by the Government of India to institutionalise and strengthen the mechanism for maintaining financial stability, financial sector development and inter-regulatory coordination. The global economic meltdown has put pressure on governments and institutions across globe to regulate the economic assets. This council is seen as an India’s initiative to be better conditioned to prevent such incidents in future.
Composition of the Council
The chairperson is the union finance minister members are Governor Reserve Bank of India (RBl); finance secretary and/or secretary, Department of Economic Affairs (DEA); Secretary, Department of Financial Services (DFS); Chief Economic Advisor, Ministry of Finance; Chairman, Securities and Exchange Board of India (SEBI); Chairman, Insurance Regulatory and Development Authority (IRDA); Chairman, Pension Fund Regulatory and Development Authority (PFRDA).
The joint secretary (Capital Markets), DEA, is the secretary of the council.
The FSDC is entrusted with the tasks of existing regulators, i.e., RBI, IRDA, SEBI, PFRDA. The council is responsible for financial stability; financial sector development; inter-regulatory coordination; financial literacy; financial inclusion; macro prudential supervision of the economy including the functioning of large financial conglomerates; and coordinating India’s international interface with financial sector bodies like the Financial Action Task Force (FATF), Financial Stability Board (FSB)and any such body as may be decided by the finance minister from time to time.
Forward Markets Commission
Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority for commodity futures market in India. It is a statutory body set up under Forward Contracts (Regulation) Act 1952. The commission functions under the administrative control of the Union Ministry of Finance.
Composition
The FMC consists of not less than two but not exceeding four members appointed by the central government, out of whom one is nominated by the central government to be the chairman of the commission.
Functions
The functions of the FMC are as follows.
(a) To advise the central government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952.
(b) To keep forward markets under observation and to take such action in relation to them, as it may consider necessary, in exercise of the powers assigned to it by or under the act.
(c) To collect and whenever the commission thinks it necessary, to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable, including information regarding supply, demand and prices, and to submit to the central government, periodical reports on the working of forward markets relating to such goods.
(d) To make recommendations generally with a view to improving the organisation and working of forward markets.
(e) To undertake the inspection of the accounts and other documents of any recognised association or registered association or any member of such association whenever it considers it necessary.
Insurance Regulatory and Development Authority
In 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000 under the IRDA Act 1999. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.
Composition
The IRDA is a ten member team (all appointed by the Government of India) consisting of (a) a Chairman; (b) five whole-time members; and (c) four part-time members.
Functions
The IRDA Act 1999 lays down the duties, powers and functions of IRDA. The authority has the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.
The mission of the authority is to protect the interest of and secure fair treatment to policyholders; to bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy; to set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates; to ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery; to promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players; to take action where such standards are inadequate or ineffectively enforced; and to bring about optimum amount of self-regulation in day-to-day working of the industry consistent with the requirements of prudential regulation.
Impact of IRDA
The IRDA has a great impact on the overall regulation of Indian insurance sector. In order to keep the proper protection of the policy holder’s interests, IRDA has a close observation over the different activities of insurance sector. The core objective or purpose of the IRDA is to protect the interests of policyholders and it is trying its level best in this context.
There is great transformation in the insurance market due to the impact of IRDA, be it with respect to marketing, insurance products, competition and customer awareness. Earlier there was no competition in the insurance sector but due to privatisation of insurance sector and inviting private players in the sector initiated by the IRDA, it has given rise to competition in the insurance sector.
In order to increase the awareness of insurance in the society, IRDA is trying to take different steps in making the activities of insurance sector transparent. The IRDA has made the government responsible and accountable in bringing uniformity in the insurance sector due to the constant increase in the number of insurers, increasing competition, number of diversified products and diversified activities of the insurers.
The IRDA has an impact over the economic development of the country because money invested by investors or individuals in various types of insurance products is made available to the government of a country in order to implement the various developmental activities in the country.
Pension Fund Regulatory and Development Authority
The Pension Fund Regulatory and Development Authority (PFRDA) was established by the Government of India on August 23, 2003 to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and for matters connected. The Pension Fund Regulatory Development Authority 2011 which was passed by Parliament in 2013 would give it a statutory status.
The authority consists of a chairperson and not more than five members, of whom at least three shall be whole-time members, to be appointed by the central government.
The PFRDA is empowered to regulate the New Pension System (NPS), as amended by the central government from time to time. The PFRDA prescribes guidelines on the number of players, prudential norms, investment criteria and capital requirement of pension fund managers. It has also been empowered to curb fraudulent and unfair practices in pension funds and protect the interests of the subscribers to the schemes of pension funds. All appeals against the orders and decisions of PFRDA lie with the Securities and Appellate Tribunal.
National Consumer Disputes Redressal Commission
Under the Consumer Protection Act, 1986, the National Commission was constituted in the year 1988 as a quasi-judicial statutory body. It is headed by a sitting or retired judge of the Supreme Court of India as president and has ten members.
The Consumer Protection Act, 1986 is a benevolent social legislation that lays down the rights of the consumers and provides their for promotion and protection of the rights of the consumers. The first and the only act of its kind in India, it has enabled ordinary consumers to secure less expensive and often speedy redressal of their grievances. By spelling out the rights and remedies of the consumers in a market so far dominated by organised manufacturers and traders of goods and providers of various types of services, the Act makes the dictum, caveat emptor (‘buyer beware’) a thing of the past.
To provide inexpensive, speedy and summary redressal of consumer disputes, quasi-judicial bodies have been set up in each district and state and at the national level, called the District Forums, the State Consumer Disputes Redressal Commissions and the National Consumer Disputes Redressal Commission respectively. The National Consumer Disputes Redressal Commission (NCDRC) at the apex has its office at New Delhi.
Consumer fora proceedings are summary in nature. The endeavor is made to grant relief to the aggrieved consumer as quickly as in the quickest possible, keeping in mind the provisions of the act which lay down time schedule for disposal of cases. If a consumer is not satisfied by the decision of a district forum, he can appeal to the state commission. Against the order of the state commission a consumer can come to the National Commission.
The National Commission has also been conferred with the powers of administrative control over all the state commissions by calling for periodical returns regarding the institution, disposal and pendency of cases. The National Commission is empowered to issue instructions regarding (1) adoption of uniform procedure in the hearing of the matters; (2) prior service of copies of documents produced by one party to the opposite parties; (3) speedy grant of copies of documents; and (4) generally over-seeing the functioning of the state commissions and the district forums to ensure that the objects and purposes of the act are best served, without interfering with their quasi-judicial freedom.
Income Tax Appellate Tribunal
Income Tax Appellate Tribunal (ITAT), a quasi-judicial statutory body, was constituted on January 25, 1941. It is dedicated to the ideals of ‘Sulabh Nyay and Satwar Nyay’—which means easy and quick justice. The criteria it has adopted for the working of the tribunal are—inexpensiveness; accessibility; freedom from technicalities; expedition; and an expertise in their particular subject.
The tribunal is constituted of a president, senior vice-president/vice-presidents, member-judicial and accountant, registrar, deputy registrar, and assistant registrar.
The president of the tribunal is the head of the department and he also exercises administrative control over all the benches of the tribunal. Each zone is headed by a vice-president. The headquarters of the ITAT is at Mumbai.
The tribunal is vested with all the powers which are vested in the income tax authorities under Section 131 of the Income Tax Act 1961. The tribunal has same powers as are vested in a court under the Code of Civil Procedure, when trying a suit in respect of the following matters—
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(c) compelling the production of books of account and other documents; and
(d) issuing commissions.
It is not a court but is a tribunal exercising the judicial powers of the state. The tribunal’s powers in dealing with the appeals are of the widest amplitude and have in some cases been held similar to and identical with the powers of an appellate court under the Civil Procedure Code. Any proceedings before the tribunal are also deemed to be judicial proceedings.
Intellectual Property Appellate Board
The Intellectual Property Appellate Board (IPAB), a quasi-judicial body, was constituted by the central government in the Ministry of Commerce and Industry on September 15, 2003 to hear appeals against the decisions of the registrar under the Trade Marks Act, 1999 and the Geographical Indications of Goods (Registration and Protection) Act, 1999. IPAB has its headquarters at Chennai and sittings at Chennai, Mumbai, Delhi, Kolkata and Ahmedabad. In April 2007, the provisions of the Patent Amendment Act, 2002 and the Patents Amendment Act, 2005, relating to the Intellectual Property Appellate Board was brought into force. Thus, all the appeals pending before the various high courts stand transferred to the IPAB. Likewise, fresh rectification applications under the Patents Act, 1970 need to be filed before the IPAB.
The appellate board is constituted of the following personnel—
(a) Chairman who must be a judge of a high court or has held the office of vice-chairman of IPAB for at least two years.
(b) Vice-chairman who must have held the office of a judicial member or a technical member or has been a member of the Indian legal service and has held a post in Grade I of that service or any higher post for at least five years.
(c) Judicial member who must have been a member of the Indian legal service and must have held the post in Grade 1 of that service for at least three years; or has, for at least ten years, held a civil judicial office.
(d) Technical member who must have exercised functions of a tribunal for at least ten years and has held a post not lower than the post of a joint registrar for at least five years; or has been an advocate of a proven specialised experience in trade mark law for at least ten years.
The chairman, vice-chairman and every other member is appointed by the President of India and no appointment of a person as the chairman is made without consultation with the Chief Justice of India.
The IPAB has appellate jurisdiction against the decision of the controller or central government of India in matters pertaining to any decisions related to inventor names; any directions given to co-owners of the patent; any decisions related to patent of addition; any orders relating to divisional application; any orders relating to dating of application; refusal of application for failure to comply with any provisions of the act; any decisions relating to anticipation; any decisions and cases of potential infringement; in respect to an correction of clerical errors; any decisions related to compulsory license of a patent; any decisions related to revocation of patent for non-working; any decisions relating to substitution of applicants; any decision in respect to any amendment/revocation of patent; any decisions related to amendment of application and specification; any decisions related to restoration of lapsed patents; any decisions related to surrender of patents; in respect to revocation of patents to satisfy public interest; and in respect to any registration of patent assignments.
Customs, Excise and Service Tax Appellate Tribunal
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), a quasi-judicial statutory body was constituted on the October 11, 1982.
The tribunal was created to provide an independent forum to hear the appeals against orders and decisions passed by the commissioners of customs and excise under the Customs Act, 1962, Central Excise Act, 1944, and Finance Act 94 relating to service tax. The tribunal is also empowered to hear appeals against orders passed by the designated authority with regard to anti- dumping duties under the Customs Tariff Act, 1975.
The tribunal is constituted of 21 members including a president and two vice-presidents.
The work of the tribunal has been distributed among various benches, comprising special benches located at Delhi and regional benches, one each located at Delhi, Mumbai, Kolkata, Bangalore and Chennai. Special Benches deal with matters relating, among other things, to disputes about the rate of duty of custom or of excise (referred to for convinces, as classification disputes) or to the value, of goods for purposes of assessment of duty of customs or of excise (referred to as valuation disputes). Special benches consist of not less than two members, at least one being a judicial member and one a technical member. Regional benches deal with matters other than those falling within the jurisdiction of the special benches. These consist of two members—one a judicial member and one a technical member. There is also a provision for single member benches which are competent to dispose of cases within the specified monetary limits falling within the jurisdiction of regional benches.
Except in the matters relating to classification and valuation of goods, the tribunal is the final appellate authority though a reference to the high court can be made on a question of law. In classification and valuation matters, the appeal against the order of the tribunal lies only to the Supreme Court. The CESTAT strives to dispose off the appeals as early as possible and deliver the judgments within well defined time frame. To have a transparency in the system, computerisation of CESTAT is underway.
Banking Ombudsman
Under Section 25A of the Banking Regulation Act, 1949, the RBI constitutes Banking Ombudsman, for redressal of grievances against deficiency in banking services, concerning loans and advances and other specified matters and also to empower him to act as an arbitrator for specified disputes, the Reserve Bank has directed that all commercial banks, regional rural banks and scheduled primary co-operative banks would comply with the Banking Ombudsman Scheme, 1995 and the Banking Ombudsman Scheme, 2002.
The Reserve Bank on the recommendation of a selection committee of four persons constituted by its governor appoints one or more persons to be known as Banking Ombudsman. The select committee consists of all the three deputy governors of the Reserve Bank; and the additional secretary (financial sector), Department of Economic Affairs as a special invitee.
The Banking Ombudsman needs be a person of repute and having experience in the legal, banking, financial services, public administration or management sectors and if such person is a civil servant he should be in the rank of joint secretary or above in the Government of India and in case of such person being from the banking sector, he should have had the experience of working as a whole time director in a public sector or equivalent position.
The powers and duties of the Banking Ombudsman are as follows—
(a) to receive complaints relating to provision of banking services;
(b) to consider such complaints and facilitate their satisfaction or settlement by agreement, through conciliation and mediation between the bank and the aggrieved parties or by passing an award in accordance with the scheme;
(c) to resolve by way of arbitration such disputes between banks or between a bank and its constituents as may be agreed upon by the contesting parties in accordance with the provisions of the scheme and the Arbitration and Conciliation Act,1996.
(d) exercise general powers of superintendence and control over his office and shall be responsible for the conduct of business thereat;
(e) to incur expenditure on behalf of the office. In order to exercise such power, the Banking Ombudsman will draw up an annual budget for his office in consultation with Reserve Bank and shall exercise the powers of expenditure within the approved budget. The Reserve Bank will indicate the share of expenditure to be borne by the concerned banks; and
(f) send to the governor, Reserve Bank, by 31st May every year, a report containing a general review of the activities of his office during the preceding financial year and shall furnish such other information as the Reserve Bank may direct.
Income Tax Ombudsman
On the recommendations of a committee consisting of the secretary, Department of Revenue in the Ministry of Finance, the Chairman, Central Board of Direct Taxes and the member (personnel), Central Board of Direct Taxes (CBDT), the central government appoints one or more persons as Income Tax Ombudsman.
The ombudsman shall be independent of the jurisdiction of the income tax department. The ombudsman is appointed for a tenure of 2 years extendable by one year or till the incumbent attains the age of 63 years, whichever is earlier based on performance appraisal. He cannot be reappointed.
The duties of the ombudsman are as follows—
(a) to exercise general powers of superintendence and control over his office and be responsible for the conduct of business in his office;
(b) to maintain confidentiality of any information or document coming into his knowledge or possession in the course of discharging his duties and not disclose such information or document to any person except with the consent of the person furnishing such information or document; provided that nothing in this clause shall prevent the ombudsman from disclosing information or documents furnished by a party in a complaint to the other party or parties, to the extent considered by him to be reasonably required to comply with the principles of natural justice and fair play in the proceedings;
(c) to protect individual taxpayer’s rights and reduce taxpayers’ burden;
(d) to identify issues that increase the compliance burden or create problems for taxpayers, and to bring those issues to the attention of the CBDT and the Ministry of Finance;
(e) to send a monthly report to the chairman CBDT and secretary, department of revenue in the ministry of finance recommending appropriate action;
(f) to furnish a report every year containing a general review of activities of the office of the ombudsman during the preceding financial year to the secretary, department of revenue, ministry of finance and the chairman, CBDT along with such other information as may be considered necessary by him. In the annual report, the ombudsman, on the basis of grievances handled by him; and
(g) to compile a list of ‘awards’ passed by it between April and March of each financial year in respect of every income tax authority complained against, by name, and report it to the controlling chief commissioners of the officers concerned and the Chairman, Central Board of Direct Taxes before the end of April so that this information can be reflected in the annual confidential reports of the officers concerned.
Income Tax Settlement Commission
Income Tax Settlement Commission (ITSC), a quasi-judicial body, was set up in 1976 by the central government on the recommendations of the Direct Taxes Enquiry Committee (1971) chaired by Justice K.N. Wanchoo, retired Chief Justice of India. The Wanchoo Committee had conceived of the Settlement Commission as a mechanism to allow a one-time tax evader or an unintending defaulter to make clean breast of his affairs.
The commission was set up under section 245B of Income Tax Act 1961. It is a quasi-judicial body, consisting of a chairman and members as the central government thinks fit.
It is a premier Alternative Dispute Resolution (ADR) body in India. Its mandate is to resolve tax disputes in respect of Indian income tax and wealth tax laws between the two disputing parties, income tax department on one side and litigating tax payer on the other.
The settlement mechanism allows taxpayers to disclose additional income before it over and above what has been already disclosed before the income tax department. The applicant has to pay full amount of tax and interest on the additional income disclosed before the commission, before filing the application. The commission then decides upon the admissibility of the application and in case of admitted applications, carries out the process of settlement in a time bound manner by giving opportunity to both parties.
The commission has wide powers of granting immunity from penalty and prosecution, which are major sources of litigation. The orders passed by the commission are final and conclusive. It is required to pass the settlement order within 18 months of filing of the application.
As of 2012, four benches of the commission were are functioning. The Delhi bench is known as the principal bench. The other benches are functioning at Mumbai, Kolkata and Chennai and these are known as the additional benches.
Securities and Exchange Board of India
The Securities and Exchange Board of India (SEBI), a statutory quasi-judiciary body, was established on April 12, 1992 under the SEBI Act, 1992 as a regulator for the securities market in India. Its headquarters is at Mumbai and it has northern, eastern, southern and western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad, respectively.
Composition
SEBI is constituted of (a) the chairman who is nominated by Government of India; (b) two members, officers from union finance ministry; (c) one member from The Reserve Bank of India; and (d) five members nominated by Government of India out of whom at least three shall be whole-time members.
Functions and Powers SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
SEBI takes care of the issuers of securities; the investors; and the market intermediaries.
The general superintendence, direction and management of the affairs of the board vests in a board of members, which may exercise all powers and do all acts and things which may be exercised or done by the board. The chairman also has powers of general superintendence and direction of the affairs of the board and may also exercise all powers and do all acts and things which may be exercised or done by that board.
SEBI is vested with the following powers:
(i) to approve by-laws of stock exchanges;
(ii) to require the stock exchange to amend their by-laws;
(iii) to inspect the books of accounts and call for periodical returns from recognised stock exchanges;
(iv) to inspect the books of accounts of a financial intermediaries;
(v) to compel certain companies to list their shares in one or more stock exchanges;
(vi) to levy fees and other charges on the intermediaries for performing its functions;
(vii) to grant licence to any person for the purpose of dealing in certain areas;
(viii) to delegate powers exercisable by it;
(ix) to prosecute and judge directly the violation of certain provisions of the companies Act; and
(x) to impose monetary penalties.
Reforms Introduced by SEBI
SEBI has taken several steps for the smooth-cum-speedy development of both primary and secondary markets from time to time for the development of all areas. Application of computerisation has given a boost to surveillance. The basic surveillance is carried out by the stock exchanges, while the SEBI monitors the process. Introduction of price caps, price bands, circuit filters, margins and stock watch are some ways of keeping a strict vigil on the market.
Improvements have been made in the clearance and settlement system. A major step in this direction is the establishment of depositories- NSDL and CDSL—and a clearing corporation—NSCCL.
For reviving primary markets, the SEBI further streamlined and simplified the issue procedure, imparted greater flexibility to the issue process and strengthened the criteria for accessing the securities market. In recent times SEBI has taken a drastic decision for reduction of IPOs‘ period from 21 days to12 days. The SEBI introduced the option of making an issue through book-building and recently it introduced ASBA scheme (in IPOs) for investment by investors through bankers.
The development of mutual funds was given a major impetus, with the revision of mutual funds regulations which now provide greater operational flexibility to the fund managers and increase their accountability and supervision. It has introduced KYC norms and not charging on any entry-load on investments made by investors on NFOs or on any existing schemes. SEBI is trying its level best for availability of ULIPs at very normal and cheaper rates.
Far reaching changes have been made in the SEBI regulations for substantial acquisition of shares and takeovers. The regulations for Foreign Institutional Investors (FIIs) were liberalised to provide greater flexibility and for widening the scope of their investments in the Indian securities market.
The SEBI reduced the categories of merchant bankers from four to one. Moreover, it has prohibited merchant bankers from undertaking activities such as leasing, bills and discounting. To empower investors make informed decisions and facilitate fair dealing, the SEBI introduced online filing and dissemination of time sensitive price information. The SEBI revolutionalised the settlement system by introducing T+2 rolling settlement system scrips across exchanges. It has issued guidelines for demutualisation and corporatisation of stock exchanges.
To create an effective regulatory regime in which all stakeholders have confidence, the SEBI has posted the Securities Appellate Tribunal (SAT) orders on the SEBI website, initiated consultative process for framing regulations, and shortened the inquiry process. The SEBI is trying to bring down various forms of risk (structural, systematic and operational) that are there in the securities market.
The SEBI has introduced a number of measures to protect the interests of investors. To create awareness among issuers and intermediaries of the need to redress investor grievances‘ quickly, the SEBI issues fortnightly press releases, publishing the names of the companies against whom maximum number of complaints have been received. To ensure that no malpractice takes place in the allotment of shares, a representative of the SEBI supervises the allotment process. In order to protect the interest of investors, SEBI took several measures with a two-pronged approach to discipline and take action against erring entities and at the same time to educate the investors about the risks associated with investing in unregulated schemes.
The SEBI has introduced an automated complaints handling system to with investor complaints. It has taken some steps for educating investors from 2000-01 onwards, it distributed the booklet titled A Quick Reference Guide for Investors to investors. It has published a book regarding ‘Investor Grievances-Rights and Remedies’.
The SEBI set up a new institution in 2003 called the ‘Ombudsman’ for the capital market. It has encouraged forming of investors associations.
Limitations of SEBI
Despite statutory powers on par with a civil court, SEBI could not made much headway regarding enforcement. The regulator needs to engender greater confidence among investors and display greater consistency regarding enforcement of regulations. The SEBI, as a regulator, proved to be ineffective in the series of scams that took place in the last decade. The SEBI has been accused of shutting the stable door after the horse had bolted. For instance, the SEBI had occasions to review the affairs of CRB capital markets but took a lenient view and as a result, investors lost crores of rupees.
The SEBI has gone more than half away to help out potential defaulters to avoid a major payments crisis. Whenever the real racketeers get up to new tricks, surveillance takes a long time to catch up. SEBI banned badla system in India in 1993, but it banned badla without providing an alternative mechanism. It is perceived to be more corporate-friendly than investor-friendly. It not only failed to penalise fraudulent companies, but remained a spectator when same companies re-entered the market with new issues. It does not have the requisite number of competent staff to regulate and develop the capital market.