Con­flict­ing Or­ders by Sebi Draw SAT Ire

The Economic Times - - Companies: Pursuit Of Profit -

Mum­bai: The Se­cu­ri­ties Ap­pel­late Tri­bunal took the cap­i­tal mar­ket reg­u­la­tor to task for pass­ing con­flict­ing or­der­son­sim­i­lar­se­cu­ri­ties­lawvi­o­la­tions. In an un­usu­ally strong re­buke totheSe­cu­ri­tiesandEx­changeBoard of In­dia (Sebi), the tri­bunal said the reg­u­la­tor was “blindly sup­port­ing” ad­ju­di­cat­ing of­fi­cers, terming its con­duct in a case as “dis­grace­ful.”

The Se­cu­ri­ties Ap­pel­late Tri­bunal (SAT) was hear­ing the case be­tween Sebi on the one side and Kr­ishna En­ter­prises and Rajesh Ser­vice Cen­tre on the other. The en­ti­ties had ap­pealed to SAT against Sebi fin­ing them ₹ 20 lakh on two se­cu­ri­ties law vi­o­la­tion­charge­seach.Thereg­u­la­tor had al­leged that the two en­ti­ties aided Ed­serveSoft­sys­tem­sin­si­phoningoff pro­ceeds from its ini­tial pub­lic of­fer, thereby caus­ing loss to share­hold­ers.

SATob­servedthatSe­bi­had­charged the en­ti­ties with two sep­a­rate vi­o­la­tions and ac­cord­ingly im­posed two sep­a­rate penal­ties in the or­der posted on its web­site on Fri­day.

Inan­oth­er­case—Ke­jasPar­mar­ver­sus Sebi — sim­i­lar to this one, the reg­u­la­tor had ap­plied pro­vi­sions re­lat­ing to two vi­o­la­tions to­gether and not separately. This led to the reg­u­la­tor im­pos­ing a com­mon penalty.

SAT was irked by Sebi’s lawyer say­ingth­atthereg­u­la­torstood­by­both­its de­ci­sions. “We are sur­prised by the at­ti­tude adopted by Sebi,” said the three-mem­ber SAT bench headed by Jus­tice JP De­vad­har.

Pass­ing con­flict­ing or­ders and de­fend­ing them doesn’t “pro­mote the de­vel­op­ment of the se­cu­ri­ties mar­ket,” it said.

“The con­duct of Sebi in sup­port­ing the or­ders passed by its ad­ju­di­cat­ing of­fi­cers which are mu­tu­ally con­tra­dic­tory in na­ture and give lever­age to the of­fi­cers to im­pose penalty as it suits them, clearly shows that Sebi is blindly sup­port­ing the or­ders passed by its of­fi­cers in spite of the fact that the said or­ders are detri­men­tal to the in­ter­ests of the se­cu­ri­ties mar­ket. Such a con­duct on par t of Sebi is dis­grace­ful to say the least,” the bench said.

SAT quashed the reg­u­la­tor’s or­der and sent the case back to the ad­ju­di­cat­ing of­fi­cer.

Se­cu­ri­ties lawyers cited the rul­ing to call for a change in laws.

“A strong se­cu­ri­ties tri­bunal is the only counter bal­ance to a strong reg­u­la­tor like Sebi,” said Man­shoor Nazki of Luthra & Luthra Law Of­fices. “This re­cent or­der is an ex­am­ple of the very im­por­tant role that SAT has to play to en­sure that a reg­u­la­tor like Sebi is kept in check while pass­ing penalty or­ders.”

The en­tire mech­a­nism needs to be re­viewed so that ad­ju­di­cat­ing offic- ers pass or­ders that are con­sis­tent, said San­deep Parekh, founder, Fin­sec Law Ad­vi­sors and a for­mer Sebi ex­ec­u­tive di­rec­tor. “Sim­i­lar quan­tum of penalty should be im­posed for sim­i­lar of­fences,” said Parekh. “Ad­ju­di­cat­ing of­fi­cers are con­sid­ered in­de­pen­dent within Sebi and there is in fact no in­ter­fer­ence with their work­ing. It is this in­de­pen­dent work­ing which causes dif­fer­ent out­comes in dif­fer­ent places.” Bom­bay High Court ad­vo­cate Va­neesa Agrawal agreed. “With­out the in-house co­or­di­na­tion be­tween var­i­ous ad­ju­di­cat­ing of­fi­cers, th­ese is­sues are likely to con­tinue. How­ever, Sebi can make its pol­icy view com­monly known to all the ad­ju­di­cat­ing of­fi­cers to bring uni­for­mity in their or­ders. In that re­spect, SAT’s or­der is a good guid­ance.”

Pass­ing con­flict­ing or­ders and de­fend­ing them doesn’t “pro­mote the de­vel­op­ment of the se­cu­ri­ties mar­ket”, said SAT bench

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