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The Securities and Exchange Board of India (Sebi)'s new regulation for settling violations through the so-called 'consent mechanism' has delayed a Securities Appellate Tribunal (SAT) ruling on Reliance Industries Ltd (RIL)'s appeal against the market regulator in the 2007 insider trading case.
The tribunal has sought clarifications from both Sebi and RIL on the implications of the new consent norms on the appeal. "Before we pronounce the order, we would like to know whether the appeal will hold, since the new Sebi regulation is retrospective in nature," J P Devdhar, presiding officer of SAT, said on Wednesday.
On January 9, Sebi notified the Settlement of Administrative and Civil Proceedings (SACP) Regulations, 2014, for settling disputes under the consent mechanism. The mechanism is a process to settle charges against a violator without admission or denial of guilt, through a penalty or market ban or both.
Though notified on January 9, the SACP regulations were implemented with effect from April 20, 2007. Its applicability on cases pending before the tribunal or any court is in question. On January 6, SAT had reserved its order after the counsels representing Sebi and RIL had completed their arguments. On Wednesday, SAT asked the Sebi and RIL counsels whether they had studied the new regulation and its applicability on the case. After the counsels sought time to review it, SAT said the next hearing would be on February 24.
RIL had filed two appeals before SAT — one against Sebi's refusal to provide it adequate documents pertaining to the case and the second against the manner in which the regulator had turned down its request for settling the case through consent. The first appeal was disposed last month, after Sebi said it had provided sufficient documents; SAT had reserved its order in the second appeal.
The insider trading case dates backs to 2007, when RIL had allegedly made unlawful gains of Rs 513 crore by trading in the shares of erstwhile Reliance Petroleum during its merger. Sebi, which investigated the matter in 2008, had issued a show-cause notice to RIL in the case in 2010. In 2011, RIL and Sebi were in talks to settle the case through the consent route, but the regulator later decided against this route.
In May 2012, Sebi had issued a circular, tightening the norms for consent settlement to exclude serious offenses such as insider trading. The consent mechanism secured legal standing in October 2013 after an Ordinance was promulgated to give Sebi more powers. Subsequently, the May circular was transformed into a regulation.
During the previous hearings, RIL counsel Janak Dwarkadas had argued Sebi was wrong in turning down RIL's application without due cause. Sebi lawyer Darius Khambata, however, said the discretion on deciding on a consent application remained with the regulator and it couldn't be compelled to settle a case through consent.
Jay Parikh, partner at law firm Verus, said, "Keeping aside both the merit-based and technical arguments of this case, including whether Reliance was afforded a good chance to present its case to Sebi in light of the consent process undergoing changes while the matter was pending, it is clear the stakes are too high for both parties to accept the SAT order. Whichever way it swings, we will see this case being hotly contested right up to the Supreme Court."
