The Securities and Exchange Board of India (“SEBI”) published the SEBI (Aid for Legal Proceedings) Guidelines, 2009 (“Legal Aid Guidelines”) last month – available at https://bsmedia.business-standard.comwww.sebi.gov.in/acts/legalaid.pdf.
Conventionally, legal aid is given by a government to people who need legal representation but cannot afford it. Case in point –Ajmal Kasab, the terrorist who has confessed to last November’s terrorist attacks has to undergo a trial, but is obviously a pauper. The State would have to provide him with legal aid and finance his legal representation.Typically, legal aid flows from the State to help indigent and underprivileged persons defend themselves against the State.
SEBI’s Legal Aid Guidelines provide for SEBI funding expenses from its Investor Protection Fund, for “legal proceedings” not involving SEBI. The term “legal proceedings” for this purpose is defined in the SEBI (Investor Protection and Education Fund) Regulations, 2009 (“Fund Regulations”) – available at http://www.sebi.gov.in/acts/Investorpro2009.pdf.
This term means any proceedings in any court or tribunal, where at least a thousand investors are affected or likely to be affected by mis-statement, misrepresentation or omission in connection with securities transactions, non-receipt of securities allotted, refund amounts or dividend, default in redemption or servicing of securities, fraudulent and unfair trade practices in securities dealings, and market manipulation. SEBI has given itself the discretion to expand the scope of “legal proceedings” to such other types of misconduct that SEBI deems appropriate to cover.
Curiously, any proceedings in which SEBI is a party would not constitute “legal proceedings”. Therefore, if SEBI were to have acted against someone, or if a person were to have a grouse against SEBI for failing to act, legal aid would not be available to him, regardless of whether such a person has the means to afford legal representation. This is a central feature that deviates from the conventional concept of legal aid provided by an arm of the State. Moreover, if SEBI were to have itself initiated an enforcement action, the Legal Aid Guidelines would not enable reimbursement of expenses for legal proceedings.
However, the Legal Aid Guidelines raise far more serious issues. If the legal proceedings relate to mis-statement, misrepresentation or omission in relation to securities transactions, the Legal Aid Guidelines require the applicant seeking legal aid to “establish” that he relied upon such misstatement, misrepresentation or omission and that such incidence caused monetary loss. If such facts are capable of being “established”, surely it would follow that SEBI ought to initiate enforcement action, establish the facts in its orders and bring the offenders to book.
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If SEBI were to choose not to act, and to instead fund private legal proceedings, the provision of legal aid would itself lead to a representation to the relevant court that an expert regulator already has a clear view in the matter. Such a position would place those proceedings on an uneven footing on substantial merits in the attempt to place parties on an even footing in relation to financial means, and needs to be rectified.
Besides, two clear provisions of the SEBI Act, 1992 (SEBI Act) expressly oust the jurisdiction of civil courts in securities actions. Amendments to the SEBI Act in 1995 (SEBI had been faced with dealing with suits against it across the country – courts would invariably issue notice to SEBI to make its views known, or litigants would make SEBI a party) ousted the jurisdiction of civil courts “in respect of any matter which the Board (SEBI) is empowered to pass any order… under this Act”. An identical ouster of jurisdiction of courts is also contained in the Securities Contracts (Regulation) Act, 1956 and in the Depositories Act, 1996 – all securities legislation administered by SEBI.
Per se, mis-statement, misrepresentation, fraudulent and unfair practices and market manipulation are matters where SEBI is not only empowered to act under regulations made by it, but also obliged to act under the SEBI Act within the confines of its jurisdiction. SEBI’s own long-standing position is that the provisions of Sections 11 and 11B of the SEBI Act clothe SEBI with the widest jurisdiction to issue directions and take action of any and every nature against any and every wrong in connection with the securities market, and against any and every person. Therefore, there can be no question of providing legal aid for sheer want of jurisdiction of civil courts for any violation of securities laws.
Besides, every violation of the SEBI Act, and rules and regulations made under it is a criminal offence, and a criminal court can be moved only upon a complaint made by SEBI. Therefore, SEBI would necessarily be a party and therefore would not be able to fund any criminal proceedings. Writ petitions, which are not barred by the ouster of jurisdiction, too would always have SEBI as a party to the proceedings, and therefore SEBI would not fund them.
The Legal Aid Guidelines may be well-intentioned but suffer from serious deficiencies.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.)
somasekhar@jsalaw.com