August 13, 2007	Monday	Rajab 28, 1428

On June 9, 2007, the federal cabinet while considering budgetary proposals, approved a proposal for the appointment of the finance minister — and in his absence the advisor to the prime minister on finance — as the chairman of the Policy Board of the Securities and Exchange Commission of Pakistan.

Once approved, the proposals were pushed through the Parliament as part of a money bill and became the law with effect from July 1, 2007. Dr Salman Shah, the advisor to the prime minister on finance, has, since then, assumed the position of the chairman of the board. This article aims to analyse the form and substance of the government’s move in an attempt to understand its full import.

The proposal for the appointment of the finance minister (or in his absence, the prime minister’s trusty advisor on finance) as the chairman of the board emanated from the ministry of finance and is the ministry’s second assault on the independence of the commission. The first assault took place on January 12, 2006, when, the ministry illegally and improperly replaced me as the chairman of the commission in order to derail the investigations into the March 2005 stock market crisis. This second assault has come less than 18 months after the first and, despite the added abuse of constitutional process this time, has gone largely unnoticed.

The proposal under discussion was introduced in the Parliament as part of the Finance Act, 2007 which is categorised as a money bill. In terms of Article 73(2) of the Constitution, a bill is deemed to be a money bill if it deals with any of the following matters: (i) imposition, abolition, remission, alteration or regulation of any tax; (ii) borrowing of money, or the giving of any guarantee, by the federal government, or amendment of the law relating to the financial obligations of that government; (iii) custody of the Federal Consolidated Fund, the payment of moneys into, or the issue of moneys from that Fund; (iv) imposition of a charge upon the Federal Consolidated Fund, or the abolition or alteration of any such charge; (v) receipt of moneys on account of the public account of the federation, the custody or issue of such moneys; (vi) audit of the accounts of the federal or a provincial government; and (vii) any matter incidental to any of the aforesaid matters.

Even on a most generous interpretation of Article 73(2), this proposal does not fall within the ambit of a money bill. The ministry appears to have followed this route for its convenience: the bill was passed within 30 days without extensive deliberations in the National Assembly and without reference to the Senate. The fact, that this proposal was ultra vires the money bill or has been enacted without due process, appears to have been ignored. A substantive proposal such as this should have followed the Article 70 route and should have been fully deliberated by both the houses of the Parliament. To the extent of the sections codifying this proposal, the Finance Act, 2007 is unconstitutional and is vulnerable to challenge on the grounds of not being proper law—the adjudgement of the Speaker and the assent of the president notwithstanding.

The appointment of the finance minister (or the advisor to the prime minister) as chairman of the policy board fundamentally changes not only the structure of the commission but also its relationship with the ministry. In terms of section 12 of the SECP Act, as it read before the recent amendment, the board comprised 9 members—four from the public sector, four from the private sector and one, the chairman of the commission. For nearly two years, one of the private sector positions has been lying vacant and the board has operated with only eight members. In terms of section 21 of the SECP Act, the primary function of the board is to act as a bridge between the commission and the government. Historically, chairman of the commission (all but one, of whom have been appointed from the private sector) has served as the Chairman of the board, and has thereby strengthened this bridging function.

Rather than filling the vacant private sector position, the Ministry chose to add a new governmental position to the board. The board now has nine serving members, five from the government, only three from the private sector and one, chairman of the commission—with his wings duly clipped. The position of the chairman of the board—along with the casting vote—has now been permanently vested in the finance minister (or the advisor to the prime minister). Consequently, the power balance in the policy board has tilted sharply in favour of the government, which now has the capacity to directly control the affairs of the commission.

In a single move, the ministry of finance has come full circle to the days of the Corporate Law Authority, which was a part of the ministry. The SECP Act 1997 in order to bring the corporate sector regulator in line with international norms converted it into an autonomous commission. The commission has a considerably larger mandate as the integrated corporate and securities regulator. In its capacity as the securities regulator, it subscribes to the Objectives and Principles of the International Organisation of Securities Commissions (IOSCO) which state that “the regulator should be operationally independent and accountable in the exercise of its functions and powers.”

The SECP Act codifies the independence of the commission: under section 6(2), the chairman, as the chief executive of the commission, manages the day to day administration of the commission with the assistance of the commissioners—all persons of integrity and specialist expertise, drawn primarily from the private sector. Furthermore, in terms of section 19(2), no commissioner or member of the board may be removed from office without an impartial inquiry and in accordance with the prescribed procedure and that too only in the limited circumstances specified in section 18 of the SECP Act. The SECP Act also makes the commission accountable t the Parliament.

In upholding this dual principle of independence and accountability, the Commission is at par with regulators as varied as the British Financial Services Authority (FSA), the American Securities and Exchange Commission (SEC) and the Indian Securities and Exchange Board of India (SEBI), all of which are operationally independent and accountable only to their respective Parliaments.

The ministry of finance flouted the provisions of the SECP Act in my ouster as chairman of the Commission. It has now flouted the Constitution to secure the appointment of the finance minister (or the advisor to the prime minister) as chairman of the board. Each of these moves has dealt a blow to the commission. Had the ministry sought to strengthen the Commission, it would have appointed commissioners—at least two positions have been lying vacant for nearly two years now—and filled the private sector position on the board. The fact that it chose to strengthen instead its own hand and that too via a money bill, suggests a mala fide intent to accommodate the present incumbents and to appease the brokers who have always preferred to deal directly with the ministry.

Unfortunately, for itself, by giving statutory legitimacy to the position of the advisor to the prime minister as an alternate chairman of the board, the ministry has given away its desperation to assert control over the commission. The position of the advisor is a non-permanent, non-establishment position, made noticeable in the present set up only because the finance minister holds dual position as prime minister. This position cannot co-exist with that of a whole time finance minister. The situation may have been different if the alternate position had been that of the adviser to the finance minister (rather than to prime minister). Is it befitting to have the finance minister as chairman of the board? Is it good policy or practice to have this top position filled in by an alternate during his absence? In any event, an otherwise occupied Finance Minister is not an “absent” finance minister. The assumption of the position of chairman of the board by Dr Salman Shah is therefore unwarranted and illegal. It appears that the ministry did not have the time or the inclination to think through these details.

The historic judgement of the Honourable Supreme Court on July 20, 2007 has underscored the importance and necessity of upholding the Constitution, of following due process, and of maintaining the separation of powers. While I join my colleagues at the Bar in joyously celebrating the independence of the judiciary, I silently mourn the constant assaults on the independence of the corporate and securities regulator and dread the implications of this onslaught.

The repeated illegal and unconstitutional assaults by the ministry of finance on the integrity and independence of the commission must be checked; otherwise, they will give impetus to similar moves to weaken other independent regulators. The ordinary citizens will pay the price for weakened regulators unless they rally to save the independence of the regulators as they did to save the independence of the judiciary. Institutional independence and integrity will have to be established and preserved in all branches of the government in order to build viable institutions.