Last fortnight this column carried a critique of a judgement of the Supreme Court which ruled that imposition of restraint on accessing the capital market, or dealing in securities under Sections 11 and 11B of the Securities and Exchange Bo-ard of India Act, 1992 (SEBI Act) did not amount to a penalty.
The court had refused to grant the protection accorded by the Constitution of India against action taken by SEBI under legal provisions that did not exist when the acts charged violations took place. The court interpreted the term “offence” under the Criminal Procedure Code and the General Clauses Act to rule that the violations that SEBI was acting against could not be regarded as offences. Besides, the court ruled that Sections 11 and 11B were procedural in character and not subs-tantive in nature for their retrospective operation to be barred.
The legislative history of Sections 11 and 11B of the SEBI Act is a chequered one. These provisions empower SEBI to “issue directions in the interests of the securi-ties market” and therefore have been used in a wideranging manner. Often the powers have been used to take urgent action in an emerge-ncy, asking various persons not to act in any particular manner until investigations are completed. Equally, the powers have been used to inflict injury on persons who are accused of wrong-doing as a consequence for their alleged rongs.Indeed, over the years, |appellate courts have even held that these powers should be read to include the power to impose penalties. It is for the first time that the Supr-eme Court has categorically ruled that Sections 11 and 11B would be regarded as procedural law rather than as substantive penal powers. Consequently, any and every usage of power under these provisions would be merely procedural in character and its retrospective usage would not be barred.
It is an undeniable reality that SEBI has consistently used terms such as “punishment”, ”convict” and “sanction” in discussing why it issued directions under Sections 11 and 11B of the SEBI Act – clearly leaving no doubt that its intent was to inflict a penalty. If these provisions are held to be merely procedural in nature, it is also noteworthy that they only require a due inquiry to be conducted.
Therefore, only a general requirement for follo-wing principles of natural justice is currently being read into these provisions, but no other protection of procedure in administration of the rule of law is contained in these provisions.
The term “inquiry” is neither defined nor regulated in the SEBI Act. SEBI is free to fix any period of time for the filing of a reply by a person to whom a notice is issued. There is no timeframe within which SEBI is required to decide once it invokes the jurisdiction of these provisions. Cases of an interim, urgent and emergent order being passed under Sections 11 and 11B of the SEBI Act, not being followed by final order for several months, and at times, years, abound. There is no known case of cross-examination of witnesses whose statements are relied upon to bring a charge of wrongdoing, being permitted. Even when appeals have been allowed and cases are remanded back to SEBI for want of cross-examination, it has never been allowed.
There is yet another dimension to reading Sections 11 and 11B as being outside the purview of the constitutional protection against retrospective operation under Article 20 of the Constitution. Article 20 also protects against self-incrimination in any proceedings i.e. no one can be expected to lead evidence against himself in any proceedings. A narrow interpretation of the term “proceedings” in the same manner in which the term “offence” has been interpreted, could lead to an argument that the process followed under Sections 11 and 11B are not technically “proceedings” and therefore, SEBI could issue directions in the form of “mere restraints” against persons who refuse to incriminate themselves, without fear of acting against the Indian Constitution.
Good law and justice often do not go hand in hand. Doing justice in the facts of a case can lead to bad law being laid down.With all respect to the court, the ratio in this opinion seems to fall in this category.
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(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own)
E-mail: somasekhar@jsalaw.com