Interim Protection, Attachment and Supersession of the Management of Intermediaries (Section 31)

When an intermediary's conduct threatens subscribers' money, a penalty after the event may come too late. Section 31 of the PFRDA Act gives two kinds of protective power. First, any aggrieved person may ask the Authority for interim measures, including attachment of assets, to protect pension funds. Second, the Authority may supersede the board or management of an intermediary that acts in breach of the Act, and appoint an Administrator to run it.

1. Interim Measures on Application (Section 31(1))

Any person aggrieved may apply to the Authority for an interim measure of protection in respect of any of the following:

• Assets: the retention, preservation, custody or sale of assets;
• Security: securing the pension funds and assets;
• Injunction or administrator: an interim injunction, or the appointment of an administrator;
• Others: such other interim measures as may be necessary.

On such an application, the Authority may pass orders, including the attachment of assets, as it considers appropriate. The provision is broader than the Authority's own interim powers under Section 14(4), because it can be set in motion by an aggrieved person, such as a subscriber, a group of subscribers or another intermediary.

2. Supersession of Management (Section 31(2))

• Trigger: on a complaint or suo motu, the Authority, after inquiry, finds that the governing board, board of directors or management of an intermediary is acting in contravention of the Act or regulations.
• Power: the Authority may supersede the governing board, board of directors or management of the intermediary.
• Procedure: in the manner specified by regulations, which Section 52 empowers the Authority to make on the supersession of the governing board of an intermediary.

3. Appointment of an Administrator (Section 31(3))

Where the management of an intermediary is superseded, the Authority may appoint an Administrator to manage the affairs of the intermediary, as provided by regulations. The Administrator steps into the shoes of the superseded board, protects the assets, keeps the services to subscribers running, and prepares for the intermediary's restoration, transfer or winding up.

4. Section 31 and Section 19 Compared

• Entities covered: Section 19 applies only to the CRA and pension funds; Section 31 applies to any intermediary.
• Decision-maker: under Section 19, the Authority reports and the Central Government appoints the Administrator; under Section 31, the Authority itself supersedes and appoints.
• Trigger: Section 19 requires conduct likely to be prejudicial to subscribers; Section 31(2) requires contravention of the Act or regulations by the board or management.
• Hearing: Section 19 expressly requires a hearing before the report; Section 31(2) requires an inquiry, and natural justice requires that the intermediary be heard.

The overlap between the two sections raises a question: may the Authority use Section 31 against a pension fund or the CRA, and so avoid the Central Government's involvement under Section 19? A harmonious reading would treat Section 19 as the special provision for the two core intermediaries, to be followed in their case, and Section 31 as the general provision for others. The point has not been settled by the courts.

5. Safeguards

• Inquiry first: supersession requires an inquiry and a finding of contravention.
• Reasons and proportionality: supersession is a drastic step and should be used only where lesser measures, such as directions or penalties, are inadequate.
• Regulations: the procedure and the Administrator's functions are governed by regulations laid before Parliament under Section 53.
• Appeal: an intermediary aggrieved by an order under Section 31 may appeal to the Securities Appellate Tribunal under Section 36.

6. Comparable Powers

• Banking: the Reserve Bank may supersede the board of a bank and appoint an administrator under the Banking Regulation Act, 1949.
• Insurance: the Insurance Act, 1938 allows the appointment of an administrator to manage an insurer whose affairs are conducted against policyholders' interests.
• Securities: SEBI's interim powers under Section 11(4) of the SEBI Act include impounding proceeds and attaching bank accounts.

7. Related Topics and Provisions

• Duties, powers and functions of the Authority (Section 14)
• Cease and desist orders and management by Administrator (Sections 18 and 19)
• Rule-making, regulation-making and delegation (Sections 49 and 51 to 54)
• Appeal to the Securities Appellate Tribunal (Section 36)