Somasekhar Sundaresan: Authorities too have to comply with law

WITHOUT CONTEMPT

By the time this column is published, the media would be full of stories of how yet another order of the Securities and Exchange Board of India (Sebi) has been upturned by the Securities Appellate Tribunal (SAT).

In an important development, the SAT has set aside a Sebi order that had put First Global Stockbroking Pvt Ltd permanently out of business. First Global is a broking firm promoted by Shankar Sharma of the Tehelka fame. Under the immediately preceding political dispensation, notoriety would have perhaps been considered the appropriate usage.

First Global had been accused of manipulating the stock market, when the market fell in February-March 2001. One of the factors that led to the fall in the market included the hidden-camera expose of corruption in defence deals by a nondescript Internet portal, in which Sharma has a majority stake. But that is hardly relevant for this column. Ostensibly, that was hardly relevant for the Sebi order.

The question that arose for consideration by the SAT was whether the deadline for passing orders prescribed by Sebi for itself in the law prescribed under the Sebi Act, was sacrosanct.

Under Sebi regulations, there is no time limit for conduct and completion of "enquiry proceedings", whereby an enquiry officer of Sebi investigates all relevant matters and comes to a final recommendation of penalty.

This final recommendation is considered by the Sebi chairman or a whole-time member of Sebi, who in turn, has the opportunity to put further supplemental questions and consider a final reply and also accord a personal hearing.

It is important to note that for the process of enquiry proceedings, there has never been a time limit on Sebi for any action. It is only after this entire process is completed and even a personal hearing and final reply is completed, that Sebi had a deadline of 30 days to pass a final order.

Had, because Sebi has now amended the law to remove even this 30-day deadline, and write in a requirement to only pass orders "as soon as possible". Curiously, the deadlines for response to show-cause notices during the enquiry proceedings have concurrently been tightened.

In the case of First Global, the 30-day deadline was brea-ched by Sebi by several months. Sebi argued in the SAT that the 30-day deadline was a non-binding deadline and Sebi could pass orders at such times as it pleased.

The SAT has followed an earlier order passed by the SAT itself (under the single-member dispensation) setting out that the requirement to pass an order in any event within 30 days, was sacrosanct.

In the earlier case, the SAT had even extended the deadline by stating that if the Sebi chairman or the whole-time member had supplemental queries, the 30-day deadline would commence from the day on which such queries were finally responded to.

It was even interpreted that if a notice provided written submissions after the personal hearing despite having given a written reply before the hearing, the 30-day deadline would commence from the last submission of any form of response.

This often led to Sebi asking noticees to come in again to clarify doubts well after completion of proceedings. If a noticee responded and went in, the 30-day deadline would begin afresh.

Currently, Sebi has amended its regulations to provide for an obligation to pass orders "as soon as possible". Even this term is not to be lightly dismissed.

There are cases where Sebi argues that orders passed after a time gap of over 18 months conforms to the legal requirement of completing its action as soon as possible. In a fit case, such a practice could come in for stick in the courts.

This would perhaps trigger yet another debate on how Sebi officers propose and the courts dispose. A more constructive response, however, would be to improve internal practices, fill up the vacant posts of whole-time members of Sebi, and ensure that public authorities too comply with the law.

(The author is a partner of ESA, Advocates & Solicitors. The views expressed are personal)