One essential feature of the rule of law is transparency.

When a government says something, it must say why it said so. This is important from three points of v iew: 1. A government that does not need to explain itself is one that has arbitrar y power. When a policeman can tell you that you're prohibited from driving becau se he does not like your face, it is rule of men and not rule of law. 2. The fundamental idea of common law is that the laws enshrine principles th at are unvarying for decades or centuries. But institutional and technological d etails of the economy change rapidly. Well reasoned orders tell the households a nd firms of the economy how timeless principles are to be interpreted in the pre sent milieu. 3. The aggrieved party can appeal against the order, on the grounds that ther e are factual errors or errors of reasoning in the order. A success story: A recent SEBI order I picked up a recent SEBI order banning a brokerage services agency from operati ng for two weeks. The punishment is not all that bad: the firm is out of busines s for two weeks. Yet, before inflicting such a penalty, SEBI had to do the follo wing hard work in the order: 1. Point out when the investigation was ordered. 2. Clearly state which rules were violated. A vague reference to a governing Act does not suffice. 3. Informs the reader about when the affected company was asked to respond. I t also mentions that the copy of the investigation report was given to the compa ny. 4. The order then mentions the advocates who appeared for the accused. 5. The findings of the enquiry officer are summarised. 6. The observations of the enquiry officer are recorded. 7. The arguments that the broker made in defense of its actions are presented . 8. The exact transactions which were found to be illegal are described. 9. The reasoning of the officer making the order is clearly laid out. 10. The amount of penalty (suspension of certificate to trade for two weeks) i s clearly mentioned. This is a nice example of legal process in operation. It is a reasoned legal ord er. Anyone can read and understand it. The order adds to the body of law of secu rities in the country. It gives an example of the transactions which are conside red illegal by SEBI: everyone can learn from the order and not make the same mis take. An appellate court can read the order and decide whether the action of SEB I was fair or not. More generally, SEBI is accountable to the public at large an d Parliament in particular, to behave in such controlled fashion. The right to operate is a very valuable thing. Interfering with the life and lib erty of an individual or firm must not be taken lightly. By providing a detailed order, SEBI clearly shows why this right was withdrawn from a person. A failure story: A recent RBI order A recent update from the Reserve Bank is a study in contrast. The order prohibit s a company from providing money transfer services to India. The text just state s that the company is barred from operating in India under the Payments and Sett lement Systems Act, 2007. It seems that the company had applied for a licence fo r operating in India and that application has been rejected.

The order is not reasoned. It does not inform the reader as to why the company w as banned. Did the company not comply with rules? If so, which rules did it not comply with? Were there any other reasons, such as inadequate capital, or lax ov ersight, or failure to enforce KYC rules, which led to RBI denying them the perm ission? Was there any other required disclosure that the company did not make? W as any hearing given to the affected party? The order/press release also does no t state the procedure that RBI used to come to its conclusion. This is not how common law should function. The order does not add to the body o f law in the country. Prospective businesses do not learn what led to the reject ion of the application and may continue to make the same mistake when they apply . Conclusion The agenda for legal reform in India consists of (a) writing laws rooted in the common law framework, (b) of building agencies such as SEBI which are fully imbu ed in this ethos, and then (c) of building top quality courts like SAT which exe rt checks and balances upon regulatory agencies.