Supreme Court Criticizes RBI Governor Over ITAT Appointment

The Supreme Court on Friday set aside the rejection of an IRS officer’s candidature for appointment as a member of the Income Tax Appellate Tribunal (ITAT), ruling that the involvement of the then revenue secretary—now the RBI governor Sanjay Malhotra, referred to in the judgment as “the officer”—in the selection process violated the principles of natural justice.

A bench comprising Justices Vikram Nath and Sandeep Mehta imposed a cost of ₹5 lakh on the Union government, describing its conduct as “rank procrastination” and bordering on vendetta. The court observed that Malhotra’s participation as a member of the search-cum-selection committee (SCSC) in September 2024 created a reasonable apprehension of bias, particularly as he had previously been a respondent in contempt proceedings initiated by Captain Pramod Kumar Bajaj concerning the officer’s service disputes. Consequently, the bench directed that Malhotra be excluded from the fresh selection process, which must be conducted within four weeks.

While Bajaj appeared in person, Solicitor General Tushar Mehta led the government’s legal team. The court emphasized that, in the interest of fairness and to remove any reasonable perception of bias, “the officer” should have voluntarily recused himself from evaluating the candidature. His failure to do so reinforced the suspicion of partiality.

Although the judgment refrains from explicitly naming Malhotra due to his sensitive position, it highlighted that justice must not only be done but also be seen to be done. References to earlier contempt proceedings make clear that “the officer” in question is Malhotra. The bench noted that his inclusion in the SCSC, which had rejected Bajaj’s candidature, created a genuine perception of bias and violated natural justice.

Bajaj, a former Armed Forces officer who joined the IRS in 1990 and rose to the rank of Commissioner of Income Tax, had previously been ranked first on the all-India merit list by an SCSC chaired by a sitting Supreme Court judge in 2014 for appointment as ITAT Member (Accountant) but was never appointed. The court described the case as a “sordid tale of targeted departmental vendetta, full of mala fide actions and protracted persecution,” noting that Bajaj had to repeatedly approach the court over more than a decade, even as he approached the upper age limit of 70 years for the post.

The bench criticized the Centre for deliberately obstructing Bajaj’s appointment through fabricated charges, delayed decisions, and forced retirement—an order later quashed by the Supreme Court in March 2023. It further highlighted that Malhotra, despite having resolved prior contempt proceedings against him in August 2024, participated in the September 2024 SCSC meeting and evaluated Bajaj’s candidature.

“The rule against bias applies when a person involved in the evaluation has a personal connection, interest, or prior involvement in the matter, or has previously taken a position he may wish to maintain. This ensures both fairness and public confidence in the impartiality of the process,” the court underlined. The bench also censured the Centre for failing to file any counter affidavit, leaving allegations of bias, mala fides, and personal vendetta unchallenged.

Finally, the Supreme Court nullified the September 2024 SCSC minutes related to Bajaj and instructed the Department of Personnel and Training to convene a new SCSC within four weeks, excluding Malhotra, and to communicate the result to Bajaj within two weeks. The ₹5 lakh cost imposed was ordered to be paid to Bajaj due to the government’s deliberate delays and obstructive conduct.