Power to Issue Directions (Section 15)

Regulations lay down general rules for everyone. Sometimes, however, the regulator must deal with a particular intermediary or a particular problem quickly and specifically. Section 15 of the PFRDA Act gives the Authority a flexible power to issue binding directions to intermediaries and other regulated persons, after an inquiry, where subscribers' interests or the orderly development of the pension system require it.

1. The Provision

2. Conditions for Issuing Directions

A prior inquiry

The power arises only after the Authority has made, or caused to be made, an inquiry. The inquiry may be an inspection under Section 14(2)(o), an investigation under Section 16, or a less formal examination of records and complaints. The requirement ensures that directions rest on facts found, not on suspicion alone.

Satisfaction of necessity

The Authority must be satisfied that a direction is necessary for one of three purposes:

• (i) Subscriber interest and orderly development: protecting subscribers, or the orderly development of the NPS or a pension scheme under the Act;
• (ii) Preventing detrimental conduct: stopping an intermediary or other regulated entity from conducting its affairs in a way that harms subscribers;
• (iii) Proper management: securing the proper management of an intermediary or entity.

The satisfaction is subjective in form, but it must be based on relevant material and a rational connection to one of the stated purposes. A direction issued for a purpose outside the three, or without any material from an inquiry, can be set aside on appeal.

3. To Whom Directions May Be Issued

• Intermediaries registered under the Act, such as the central recordkeeping agency, pension funds, points of presence, the trustee bank, custodians and retirement advisers;
• Persons and entities referred to in Section 27, that is, those required to be registered with the Authority, whether or not they have actually obtained registration;
• Any person or class of persons associated with the pension fund, which reaches beyond registered intermediaries to persons connected with the management of subscriber money.

The power to direct a class of persons means the Authority can address a problem common to many intermediaries, such as a practice of charging unauthorised fees at points of presence, through a single direction.

4. Content of Directions

The Act does not list the directions that may be issued; the Authority may issue such directions "as it may deem fit". Examples of directions within the power include:

• requiring an intermediary to stop a practice, such as charging fees above the permitted level or delaying the transfer of contributions;
• requiring restitution to subscribers who have suffered loss;
• requiring changes in systems, controls or management of an intermediary;
• requiring an intermediary to cooperate with another intermediary or with the Authority, for instance in the transfer of records;
• requiring the disclosure of specified information to subscribers.

Directions must be consistent with the Act and proportionate to the problem identified. They cannot be used to impose a monetary penalty, which is governed by the separate procedure under Sections 28 and 30, or to cancel registration, which requires the procedure under Section 27 and the regulations.

5. Hearing Before or After

The proviso requires an opportunity of being heard to the persons concerned, either before or after the order. A pre-decisional hearing is the norm under the principles of natural justice, but the Act permits a post-decisional hearing where urgency requires the direction to take effect at once.

6. The Words "Save as Otherwise Provided in Section 14"

Section 15 opens by saving Section 14. The effect is that the general power of direction does not cut down the specific powers in Section 14, such as the interim measures under Section 14(4). Where the Authority wishes to attach a bank account, for example, it must follow Section 14(4), including the requirement of a Magistrate's approval, and cannot avoid that safeguard by calling its order a "direction" under Section 15.

7. Consequences of Non-compliance

• Monetary penalty: non-compliance for which no separate penalty is provided falls within the residuary penalty in Section 28(5), which may extend to one crore rupees or five times the profits made or losses avoided, whichever is higher, imposed by an adjudicating officer under Section 30.
• Prosecution: failure to comply with orders of the Authority is also an offence under Section 32, punishable with imprisonment of one month to ten years, or fine up to twenty-five crore rupees, or both.
• Regulatory action: persistent non-compliance may lead to suspension or cancellation of registration.
• Cease and desist: the Authority may also issue a cease and desist order under Section 18.
• Administrator: in the case of the CRA or a pension fund, conduct prejudicial to subscribers may lead to the appointment of an Administrator under Section 19.

8. Remedies of the Person Directed

A person aggrieved by a direction may appeal to the Securities Appellate Tribunal under Section 36, and from there to the Supreme Court on a question of law under Section 38. Grounds commonly raised include the absence of a prior inquiry, absence of material, a purpose outside Section 15, lack of proportionality, and denial of a hearing.

9. Policy Directions Distinguished

Section 15 directions must be distinguished from directions under Section 43. Under Section 15, the Authority directs intermediaries and regulated persons. Under Section 43, the Central Government directs the Authority on questions of policy. The first is an instrument of regulation; the second is an instrument of democratic control over the regulator.

10. Questions Arising

Can a direction be issued to an entity that is not registered?

Yes. The power extends to persons and entities referred to in Section 27, that is, those required to obtain registration, and to persons associated with the pension fund. An entity that should have registered cannot escape directions by having failed to do so; its failure to register is itself a violation that attracts a penalty under Section 28.

Can a direction require payment of money to subscribers?

A direction to restore money wrongly charged or withheld from subscribers is within the purpose of protecting their interests, and is remedial rather than punitive. What a direction cannot do is impose a penalty payable to the State, because penalties follow the adjudication procedure in Sections 28 and 30, with its own hearing and appeal.

Is a direction binding before the post-decisional hearing?

Yes. Where the Authority chooses to hear the person after the order, the direction operates from the date it is issued. The person may seek a stay from the Securities Appellate Tribunal in an appeal, or ask the Authority to modify the direction at the hearing.

11. 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)
• Registration of intermediaries (Section 27)
• Penalty and adjudication (Sections 28 and 30)
• Central Government policy directions (Section 43)