Separation of Powers in India's Regulatory Framework

The traditional focus of separation of powers in India involves the legislature, executive, and judiciary. However, the current challenge extends to regulatory bodies, which function as mini-states exercising quasi-legislative, executive, and quasi-judicial powers. This blending of roles can lead to procedural confusion and public law concerns, as highlighted by the Supreme Court in various cases.

Regulatory Challenges and Judicial Observations

• The Supreme Court in Clariant International Ltd & Anr vs Sebi (2004) noted regulators' dual roles in making and adjudicating regulations, warning of potential public law concerns.
• In Vishal Tiwari vs Union of India (2024), the Court directed the Securities and Exchange Board of India (Sebi) to separate its quasi-judicial and executive functions.
• Despite statutory mandates, inadequate separation of functions can lead to legal challenges, as seen in the National Financial Reporting Authority (NFRA) case in Deloitte Haskins vs Union of India (2025).

International Comparisons and Lessons

The United States offers a stricter separation model, as evidenced by the Securities and Exchange Commission's (SEC) practice and reinforced by the US Supreme Court in SEC vs Jarkesy (2024). This case emphasized the need for courts, not administrative bodies, to adjudicate when penalties are punitive.

Issues with Fusion of Functions

• The merging of quasi-legislative and quasi-judicial functions poses significant challenges, akin to a legislative body adjudicating its laws.
• The Insolvency and Bankruptcy Board of India (IBBI) initially implemented safeguards against bias, later diluted in practice, illustrating the dangers of regulatory discretion.

Regulatory Authority and Penalties

Regulatory bodies in India, beginning with Sebi, have been empowered to impose monetary penalties under stringent conditions. While this approach has expanded regulatory powers, it also blurred lines between legislative and judicial functions, as seen with Sebi's regulations and circulars extending penalty lists.

Need for Institutional Design Reforms

As regulatory domains expand, there is a growing need for institutional laws mandating separate wings for rule-making, execution, and adjudication. When internal separation isn't viable, independent tribunals should intervene. Courts must ensure regulators don't blur the lines between creating and enforcing laws.

Conclusion

India's constitutional promise rests on fair governance. The fusion of legislative and judicial powers within regulators threatens this principle. The strength of governance will be measured by how power is exercised, emphasizing the need for clear separation of functions to uphold governance integrity.