Saturday, March 6, 2010

Judges in a tight spot over Conflict of Interest - Livemint.com


A civil law tradition laid down in Victorian-era Britain has put the modern Indian judiciary in a fix. Judges, particularly in the Supreme Court, are withdrawing from cases relating to companies in which they or their family own shares or have other interests.
With 20 of the 26 apex court judges owning shares, mutual funds or other market instruments, legal experts fear the registrar’s office may soon struggle to find an acceptable bench to try some of the commercial cases.
The tradition began in 1852 when Lord Cottenham of Britain recused, or withdrew, from the Dimes v Grand Junction Canal case as he owned some shares in a company involved in the dispute. Judges have since been expected to recuse from all such cases—even in India, where they are not obliged to do so by law.
The issue hogged the limelight in November, when justice R.V. Raveendran of the Supreme Court withdrew from hearing a dispute between the estranged Ambani brothers, Mukesh and Anil.
The reason? His daughter worked with a law firm that helps Mukesh Ambani-owned Reliance Industries Ltd (RIL) in its global acquisitions.
In the same month, justice S.H. Kapadia recused from hearing the cases of ITC Ltd and Sesa Goa Ltd as he held shares in these firms. Justice Markandey Katju, who owns a stake in RIL, also withdrew from hearing a payment dispute between RIL and Bharat Petroleum Corp. Ltd.
On 8 February, another Supreme Court judge, V.S. Sirpurkar, recused from a case involving Dutch power firm Brakel Corp. NV and Reliance Infrastructure Ltd, as he held shares in the latter.
From the beginning, Supreme Court judges have drawn a distinction between financial and non-financial conflicts of interests when deciding on when to withdraw. They almost certainly withdraw when they have a financial conflict of interest, to avoid allegations of bias.
However, in cases of non-financial conflict of interest—such as the judge being a friend of one of the lawyers, or having heard the same case in some other forum—they stay on the bench if the lawyers waive the objection.
The concern is not confined to the apex court. A lawyer, who did not want to be named, said no judge of the Bombay high court could hear the cases of a large consumer durables manufacturer recently as they all held its shares.
Legal experts say the practice is anachronistic; India today is not the England of 1852. They point out the number of demat accounts with the two depositories—National Securities Depository Ltd and Central Depository Services (India) Ltd—have increased from 2.5 million in March 2000 to 16.3 million now. Naturally, a number of judges, or their families, also own some of these shares.
“Should a judge recuse from a case just because he or his family members hold a few shares in a multi-crore-share company?” asked senior Supreme Court lawyer and constitutional expert Rajeev Dhavan.
But a judge who does not recuse in such cases could also face allegations of bias. Dhavan suggested: “Well-defined guidelines devised by the judges on financial conflict of interest and recusal would help avoid the controversy.”
Ashok Desai, another senior Supreme Court lawyer, agreed with Dhavan. “A clear definition of the financial conflict of interest is necessary,” he said. “If the financial interest is insignificant or remote—for instance, when the judge holds only a few shares of a large company—it would be better for the judge to declare his interest and leave it to the parties to raise or waive objection to his being on the bench.”
Withdrawals over financial conflict of interest are common in the US, said Desai. In a 1982 antitrust case involving cement companies, a judge had to recuse because his wife was among hundreds of thousands of shareholders of one firm, owning shares worth $30.
Shamnad Basheer, a professor at the National University of Juridical Sciences, Kolkata, said it was illogical to insist that the most insignificant of financial interests should bar a judge from hearing a case. He called the distinction between financial and non-financial conflicts of interest “arbitrary” to some extent since a judge who owns a share worth Rs10 may still have to recuse himself under this standard.
“Why don’t we have a simple test of whether the interest, financial or non-financial, is significant enough to influence the judge?” he asked. “A determination in this regard can be made by a special body comprising senior judges and senior counsels.”
Dhavan also suggested that judges could discuss and draw a line between “holding a few shares and being more of an investor” in a company, and “owning substantial shares and being part of a firm’s power structure”.
Source - Livemint.com

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