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Rid the interference

N. R. Moorthy says it is time the UTI Act was amended to build in more accountability.

DOES the Unit Trust of India (UTI) function as an autonomous body? Have unfair trade investments been the bane of the UTI?. Is it fair to expect the investors, particularly retail, to share the burden of diminishing returns on investments, made injudicio usly or under political/governmental pressure. Who is accountable to the investors and for the funds vested with the trust? And who is answerable to Parliament?

The UTI was established by an act of Parliament in 1963. Similarly, Parliament enacted the LIC Act of India, 1956, the IDBI Act, 1964 and a host of other bank nationalisation legislation. Recent trends indicate an upward swing in the establishment of suc h autonomous bodies and authorities. All these financial institutions manage (or mismanage) crores of rupees. They are supposed to be the guardians of the funds entrusted, and any betrayal of this trust is gross dereliction of duty calling for criminal a ction. Those managing the funds and the corporations are, therefore, certainly answerable and accountable to Parliament.

What are the duties of the autonomous bodies? Justice Chagla, who investigated the LIC scam over four decades back, had laid down certain guidelines, which included, among others, the non-interference by the Government in the working of autonomous statut ory corporations. But if it wished to do so, the directions should be given in writing. In a parliamentary form of government, the House should be taken into confidence by the minister concerned at every stage and all the relevant materials placed before it. This would avoid possible embarrassment, especially if Parliament gets the information from other sources.

These guidelines have, however, been neglected. Taking or seeking instructions from ministers/ministries has become a common practice despite enough security to employment. Once ministers know that corporate chiefs will resist and ask for written orders, then an altogether different scenario will emerge.

According to eminent jurist and constitutional law expert, Mr F. S. Nariman, ``Ministerial responsibility under our parliamentary system of government is not dissimilar to ministerial responsibility as it obtains in the UK. In constitutional theory, whic h may not always accord with constitutional practice, ministers are not responsible for autonomous corporations consciously and deliberately set up by Parliament as independent statutory bodies.'' In support, he quotes a passage from a leading text: ``Th e essence of autonomy is that no minister can be criticised for any action of the autonomous authority. If any information is sought from Parliament he may be able to obtain it as a matter of courtesy. He can be told that the law ought to be changed and he can be blamed if he takes no steps to that effect but neither legally or morally blamed for the action actually taken.''

Unfortunately, the current system operates differently. Politicians and ministers want to call the shots even in such statutory autonomous bodies. Vested interests drive them to favour select industrialists or entrepreneurs, despite being aware of the fa llout. Unless the approach changes, or the Act is amended, this malady will continue.

A look now at the provisions of the UTI Act, 1963:

The statement of objects state that the UTI ``will encourage saving by providing for various classes of investors the facility of investing their money in units of the trust. The trust will invest the initial capital and the capital obtained by the sale of the units in shares and other securities and will distribute every year not less than 90 per cent of the net income accruing to the unit-holders. It is expected that the risk of the losses or of depreciation on account of the investment will be reduce d or eliminated as a result of the proposed arrangement.''

The preamble to the legislation emphasises that the corporation was established ``with a view to encourage saving and investment and participation in the income, profits and gains accruing to the corporation from the acquisition, holding, management and disposal of securities.''

Section 9 of the UTI Act says that ``the general superintendence, direction and management of the affairs and business of the trust shall vest in a board of trustees which may exercise all powers and do all acts and things which may be exercised or done by the trust.''

According to Section 10, which deals with the composition of the board of trustees, the chairman will be appointed by the Central Government in consultation with the IDBI. In addition, there will be 10 trustees, one nominated by the RBI, four nominated b y the IDBI, of whom three shall be persons ``having special knowledge of, or experience in, commerce, industry, banking or investment''; one by LIC; one by SBI; two to be elected in the prescribed manner by contributing institutions and an executive trus tee. In effect, all these appointments are either made by the Central Government or as recommended by it from among retired or retiring IAS officers or other government servants or officials of PSUs, not withstanding these provisions.

It is time that the UTI Act was amended so that: it becomes more accountable to the public; the chairman and executive trustees are not appointed at the whims and fancies of politicians and bureaucrats; a clear-cut procedure is laid down for appointment of trustees; unit-holders are also represented on the board; all decisions for investments and disposals are taken by unanimous consent (with a veto to the chairman -- but also with a proviso -- that the same will be exercised judiciously, recording the reason and reasoning for doing so); and all instructions from government and/or ministers are made in writing.

There should be no lock-in period so that investors have the freedom to exit. All the units must be NAV based and the NAVs of various schemes must be announced weekly. As it stands, the UTI is setting a bad precedent for other mutual funds.