The curious regulatory carte blanche

The march of constitutional law and regulatory affairs in our times has undoubtedly been towards the salutation of independence and deference to decisions of regulators and expert bodies. India has come a long way since the 1980s on the topic of economic regulation, in part pushed by frequent flinching when one thinks about the erstwhile Licence Raj and the impact it had had on our country’s economic landscape.

There is, however, an often unnoticed but ubiquitous, innocuous in appearance and to the executive’s credit, a scarcely used power appearing in most of the statutes governing our regulators. Most iterations of this provision provide for the executive’s power to issue directions on any matter of ‘policy’ and in ‘public interest’ to the concerned regulator, presuming the executive has considerations of its own. In tune with the spirit of such a provision, it is unsurprising that it provides that the executive is the final judge of what constitutes ‘policy’.

Section 7 of the Reserve Bank of India (RBI) Act is one such section which stood in the limelight, due to the issues of demonetisation and resolution of non-performing assets (NPAs) in the power sector. Among others, the Telecom Regulatory Authority of India (TRAI), the Insurance Regulatory Development Authority of India, Central Electricity Regulatory Commission and the Airports Economic Regulatory Authority of India are amenable to such directions on matters of ‘policy’ from the executive.

Possibly, it has escaped public deliberation due to its scarce use, but is nonetheless worthy of attention, as it potentially can be a legally audacious backdoor key for the executive. It may be used to direct/overrule an independent and empowered regulator, or simply be a bottleneck when issues require immediate policy intervention.

Such a provision appears to confer unbridled and uncanalised power on the executive to mandate on anything that it thinks is ‘policy’, if it is in ‘public interest’. Considering the nebulous nature of these terms, it is well-nigh impossible to glean a coherent set of situations or reasons wherein such directives may be given. Therefore, whilst such directions remain fully subject to judicial review and may be required to pass constitutional muster in courts, they do not inspire confidence from an administrative stand point, inasmuch as there is no definition for structured intervention of the executive when policy is being framed at the ground level for sensitive sectors. Moreover, due to possible political overtones to every act of the executive’s, there is understandable hesitance to use such a carte blanche provision, which mostly results in informal hurdles being placed to force policy or resorting to undesirable institutional arm-twisting and informal settling.

Such ambivalence has already resulted in instances of policy paralysis and regulatory pushback, as can be seen in TRAI dithering over pricing of spectrum and most recently, the RBI refusing to accede to the executive’s wishes on the issue of power sector’s NPAs, except in form of a written directive under Section 7.

In the case of CDMA spectrum pricing, the executive wanted an auction with a high reserve price whereas TRAI held a view that it was a dying ecosystem with low uptake. Consequently, the executive in a strongly worded letter in the consultative process mentioned invoking its powers to issue a directive under the TRAI Act but did not actually invoke it. While the merits of either policy are a different story, the attempted arm twisting did not inspire confidence in stakeholders.

The case of NPAs in the power sector is also noteworthy, as while the executive publicly held the view that the RBI should give more time to stressed companies, it refrained from using its powers to issue a directive. Resultantly, the buck had to stop at the Allahabad High Court, which curtly reminded the executive that it cannot remain irresolute and undecided. More so, one of the purports of its judgment was that the executive cannot hope to affect its policy decisions through either the regulatory or the judiciary, in an underhand manner. One is inclined to think that any such action may not be considered totally political/ entirely discretionary if the statute itself provided certain criteria or stipulations for its usage.

Therefore, where statutes empower the executive with powers to issue directions to an independent regulator, the limits of such power should be clearly set out. As far as possible, attempts should also be made to stipulate what matters may be constituted ‘policy’ and as to when such interference may be brooked. The issue is far more serious regarding economic regulators like the RBI where national interest at stake demands nothing less than the utmost resoluteness and transparency. While, it should be accepted without demur that all regulators should operate within the power delegated and should remain subject to long-term national policy, their independence should not be curbed, either by the executive passing directions or arm-twisting in their shadow. Indeed, it can be argued that it is in the interest of accountability that these provisions be used, if at all intervention in policy is being attempted.

It is heartening that such provisions have been scarcely used in India. A sound stance from the executive may not need letting matters reach the court.

The author is an associate with J. Sagar Associates. Views are personal