The Supreme Court (SC) of India has ruled that any action taken by the Securities and Exchange Board of India (Sebi) in its administrative and legislative capacity cannot be appealed at the Securities Appellate Tribunal (SAT). This means that one cannot approach SAT against a circular passed by Sebi since SAT has jurisdiction only over orders and directions passed by the capital markets regulator in a quasi-judicial capacity.
The apex court passed this judgment when it was hearing an appeal filed by Sebi against a SAT order in a case relating to National Securities Depository Ltd, or NSDL.
NSDL had appealed against a Sebi circular on dematerialization charges with SAT in 2006.
SAT in September 2006 had ruled that the term “order” in Sebi Act is extremely wide, and can be applied in all three types of orders— administrative orders, legislative orders, and quasi-judicial orders. Thus, it ruled in favour of NSDL.
Sebi challenged SAT’s verdict in the Supreme Court and secured a reversal. The Supreme Court, in the order passed on 7 March, said that only “quasi-judicial” orders and decisions are a “subject of SAT”.
“Administrative orders such as circulars issued under the Sebi Act are obviously outside the appellate jurisdiction of the tribunal,” said the order.
This could lead to many appeals that used to be addressed by SAT to be withdrawn. “With the Supreme Court ruling, a significant number of cases before SAT will now be withdrawn since the apex court has restricted the scope of powers of SAT. The tribunal can now only hear quasi-judicial orders from members or adjudicating officers of Sebi,” said Sandeep Parekh, partner at Finsec Law Advisors and a former executive director with the capital markets regulator.
Indeed, the United Forum of Distributors, a grouping of mutual fund agents, has already withdrawn a SAT appeal against Sebi’s order asking them to disclose the commission received from every individual investor, said two people with direct knowledge.This was a decision taken by Sebi in an administrative and legislative capacity, said the first person.
Some experts say this ruling can lead to unfettered powers for the regulator. “For instance, the rejection of an offer document in an IPO (initial public offering) may constitute an administrative action of the regulator. However, no right to appeal against such an action may result in a lapse of natural justice principles, which requires every person to receive a fair hearing,” said Kaushik Mukherjee, a partner with BMR Legal.
To be sure, appellants can still go to high courts to challenge Sebi’s orders but that might not prove to be so easy. “Validity of circulars can now only be done at the high court by way of a writ. Substantively, this will also restrict the scope of the challenge. What can be challenged before SAT (is) broad and on merits, while in writ jurisdiction one can only challenge the legality based on, say, bias or perversity of an order,” said Parekh.
The Supreme Court ruling also comes at a time when the government is merging tribunals in a bid to have one specialized appellate body against orders and decisions of various regulators and reduce the burden on the judiciary.