Every decision of Sebi is appealable

WITHOUT CONTEMPT

The Securities Appellate Tribunal (SAT) has recently passed a landmark order having far-reaching consequences for appellate oversight in the capital markets. The order is about the sweep of appellate scrutiny over decisions and actions of the Securities and Exchange Board of India (Sebi).

Disposing of an appeal by the National Securities Depository Ltd challenging a Sebi circular, SAT has ruled that its appellate jurisdiction covers all Sebi decisions.

The term "order" has finally been dealt with exhaustively. Section 15T of the Act enables any person aggrieved by an "order" passed by the Sebi to appeal.

Sebi strenuously argued that SAT could sit in judgment only over its quasi-judicial orders. Since the challenge before SAT related to a circular directing depositories not to charge demat account holders in a specific situation, Sebi argued that the circular was a policy decision, and at best a legislative action. It did not partake the characteristics of an appealable "order."

While the appeal itself was not upheld on merits, SAT has given an unexceptionable and well-reasoned judgment on what constitutes a Sebi "order." SAT noted that the term "order" had been defined by law dictionaries to include "rules" and "regulations."

"The right of appeal is a statutory right and it has necessarily to be governed by the provisions of the statute which creates it," SAT said, adding that it was "open to the legislature to restrict that right." It noted that the Act did not entail any such restriction.

Noting that Parliament had consciously conferred on Sebi executive, legislative and judicial/quasi-judicial powers, SAT said the provision for appeal under Section 15T of the Act did not limit that right only to orders passed by the board or its officers in exercise of judicial/quasi-judicial powers. "The language used in Section 15T is of widest amplitude and makes every order passed by the board appealable, whether it be in exercise of its administrative, legislative or judicial/quasi judicial powers," SAT noted.

It also pointed out where Parliament desired to limit the right of appeal under the Act, it had done so. For example, Section 15Z of the Act, which provides for an appeal from SAT to the Supreme Court, clearly restricts such appeals to only questions of law, and excludes questions of fact. Sebi circulars are but general orders that are passed in lieu of multiple specific orders. Merely because the order is in the form of a circular, thereby becoming a policy decision or legislation, the right of persons by such decisions or legislation to pursue a challenge under Section 15T of the Act would not get frustrated.

SAT has reiterated the import of a constitutional Bench order of the Supreme Court to emphasise that even subordinate legislation in the form of regulations made under an Act of Parliament can be challenged before a tribunal if they are in conflict with the Act. The only restriction imposed by Parliament on such oversight by tribunals was on constitutional challenge to the very Act of Parliament that created the tribunal.

This decision finally puts to rest, at least at the SAT level, one of the most common objections to appeals under the Act.

Often "acknowledgement cards" given to enable initial public offerings to go ahead under the Sebi (Disclosure and Investor Protection) Guidelines and "letters of observations" given to acquirers making open offers under the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations are challenged since they partake the character of an order. Such appeals are strenuously objected to on the ground that these documents can never constitute an appealable "order."

The true test would be to check whether the contents and import of a document create any binding obligation on any person. If such obligations cannot be ignored without incurring adverse consequences under the Act, regardless of purported disclaimers or the nomenclature of the document prescribing the obligations, an appealable order would come into being.

The charm here is not in having a forum in SAT to challenge every decision of Sebi, but in the consciousness that the SAT's decision would drill into the author of every such circular, policy decision or regulation, to ensure that the decision in question has to be reasonable, fair, non-arbitrary, and most importantly, in consonance with law.

(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own)

somasekhar@jsalaw.com