NSE Digs in Its Heels
Prakash Kardaley 03 November 2010

What do the exchanges have to lose by opposing the RTI Act, wonders Prakash Kardaley

The Central Information Commission (CIC) pronounced on June 7 that all registered stock exchanges are public authorities under the Right to Information (RTI) Act and are, therefore, obliged to give information to any requisitioner under the Act. Surprisingly, the National Stock Exchange (NSE), India’s most successful and professionally-run exchange, has chosen to challenge the CIC’s well-argued order. It has also won temporary reprieve; the Delhi High Court stayed the CIC’s order and issued notices to the regulator and the finance ministry. CIC’s decision came in response to two appeals filed by the NSE and the Jaipur Stock Exchange. Whether or not the NSE wins its battle against the public’s right to know, it has already lost the battle for public perception on the transparency and openness of its operations, especially because its regulator, the Securities and Exchange Board of India (SEBI), has supported the CIC’s view. - Editor

Does NSE’s heel-digging make logical sense? Can RTI apply to a registered company, like the NSE, which now has private investors and will be publicly listed? Does bringing NSE under the RTI Act mean applying the provisions of the Act to the private sector? A mere glance at the trim piece of legislation covering barely 30 sections would have been enough for one to know that the Act is not confined only to government organisations. It extends to the private sector as well, although with certain conditions. In fact, ardent transparency advocates argue that the Act should actually apply to all non-government bodies in this era of privatisation, where many public services and public sector undertakings are being given over to private hands.

Apart from government departments and semi-government organisations, the RTI Act, 2005, brings in its fold organisations “owned, controlled or substantially financed by the government” as well as “non-Government organisations substantially financed, directly or indirectly by funds provided by the government”. These “non-government organisations” do not merely mean the jholawala NGOs but all “authorities, bodies or institutions of self-government established or constituted by or under the Constitution; by any other law made by Parliament; by any other law made by State Legislature or by notification issued or order made by the appropriate government”, thus bringing under the purview of the RTI Act, companies, corporations, trusts, firms, societies or cooperative societies.

All such organisations under the mandate of the law on transparency are expected to set up a mechanism to receive requisitions for information from any citizen and provide the desired information - subject to a few exclusions, of course - within the time frame and norms prescribed. There has barely been any voluntary compliance. The general stance adopted by private organisations has been that of indifference or defiance.

What is wrong in being transparent, unless one desperately wants to cover up one’s own misdeeds? Transparency in public life, either as the spirit or as a piece of legislation, when codified into a law, knows its legitimate Laxman Rekha. It does not cause any unwarranted invasion of an individual’s privacy. It does not expect disclosure of any information that would be detrimental to society at large. On the other hand, it attacks excessive and unnecessary secrecy that, in fact, is injurious to the well-being of society. Any opposition to the spirit of transparency, therefore, must be seen as profound disrespect to society.

In deciding that the NSE and the Jaipur Stock Exchange - or for that matter, any registered stock exchange - are organisations “controlled’’ by the government, the full bench of the Central Information Commission observed: “Although the National Stock Exchange and for that matter even the Jaipur Stock Exchange may have been incorporated as a company and may have been registered under the Companies Act, but still they do discharge an important public function as they regulate and control the business of sale and purchase of securities. This business cannot be taken by any other company or body or institution under Section 4 of the SCRA. Mere incorporation does not give them any right to function. It is the grant of recognition by the SEBI, which exercises the powers of the Government under SCRA, that enables them to function as a stock exchange.

Thus, it is not incorporation but the recognition which makes them function. Although the day-to-day functions of the stock exchange are managed by a Board and the stock exchanges do have the powers to make the bye-laws, these powers are also conferred on them under Section 9 of the Securities Contracts (Regulation) Act, 1956… The Government’s control can be further inferred from the provisions of Section 11 of the SCRA which enables the Government and the SEBI to supersede the governing body of a stock exchange… The Central Government also has powers to suspend the business of the stock exchange. Thus, a stock exchange starts its function only after recognition and even while so functioning, remains under the implicit control of the Government through SEBI…”.  The CIC has underscored the control that the government exercises over stock exchanges and their fundamental ability to function. Here are some specific powers:

  • Section 4 empowers the Central Government to grant recognition to stock exchanges upon satisfying itself that all the criteria in the governing law have been fulfilled. Rules of a recognised stock exchange can be amended only upon approval of the Central Government.
  • Section 6 empowers the Central Government to call for periodic returns or direct enquiries to be made.
  • Section 7 provides for annual reports to be furnished to the Central Government.
  • Section 10 also empowers the Central Government to make or amend bye-laws of recognised stock exchanges.
  • Section 11 empowers the Central Government to supersede the governing body of a stock exchange.
  • Section 12 empowers the Central Government to suspend the business of recognised stock exchanges.
  • Section 12A provides for issuing of directions by SEBI to a stock exchange “to prevent the affairs of such exchange from being conducted in a manner detrimental to the interest of the investors or securities market.”

Based on this, the CIC ruled in unambiguous terms that functioning of all recognised stock exchanges are under the “deep and all pervasive close control” of the Central Government and, hence, they fall within the definition of ‘public authority’ under the RTI Act.

Any right thinking person would have expected stock exchanges not to have opposed a requisition under the RTI Act in the first place, or at least to have decided to honour the decision of the CIC. After all, what do they have to hide? What is there in any disclosure that would go against the public interest? Yet, the NSE has challenged CIC’s interpretation and has obtained a stay order. All one can do at the moment is to wait and watch, but simultaneously wonder how the NSE, that claims to be totally autonomous, is being represented in the court by an additional solicitor general of the Government of India!

(Prakash Kardaley is a senior journalist and a leading RTI crusader. He is a member of the Working Committee of National Council for People's Information that trains government officers in RTI. He runs 'humjanenge' a yahoogroup that is now a powerful meeting place for RTI activists.)

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