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In a very interesting decision, the Supreme Court interpreted the provisions of SEBI Act (‘the Act’), and ruled on a contentious question – Whether administrative circular that is issued by SEBI under the Act can be the subject matter of appeal u/s 15T of the Act?
This article is an analysis of the Apex Court’s judgment in National Securities Depository Ltd. V. Securities and Exchange Board Of India [“NSDL v SEBI”] [dated March 7, 2017].
On November 9, 2005, SEBI had issued Circular relating to “Review of dematerialization charges” u/s 11(1) of the Act. By the said circular, Depositories were advised that no charges shall be levied on Depository Participants (‘DPs’) and consequently by DPs on Beneficiary Owner (‘BO’) when a BO transfers all securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository. The objective of SEBI’s Circular was: (i) To protect the interests of investors in securities, (ii) To promote the development of securities market, and (iii) To regulate the securities market.
A preliminary objection was raised by the regulator in the appeal filed by NSDL before the Securities Appellate Tribunal (‘SAT’). It was urged that by the under the Act, SEBI has administrative, legislative and quasi-judicial functions and that the appeals preferred to the SAT can only be from quasi-judicial orders and not administrative and legislative orders. This preliminary objection was turned down by SAT by its judgment dated September 29, 2006. The SAT ruled that the expression “order” is extremely wide. Since there is nothing in the Act to restrict an appeal only against quasi-judicial orders, appeals would lie against all three types of orders under the Act i.e. administrative orders, legislative orders as well as quasi-judicial orders.
The Supreme Court’s Analysis
The Apex Court observed that SEBI is an expert body created by the Act which has administrative, legislative and quasi-judicial functions. With an objective to decipher the critical issues and provisions relating to SEBI’s quasi-judicial functions, SC perused the following provisions of the Act:
- Section 11 (relating to ‘Functions of SEBI’),
- Section 11B (relating to ‘Powers of SEBI to issue directions’),
- Section 12 (relating to ‘Registration of stock brokers, sub-brokers, share transfer agents’),
- Section 15I (relating to ‘Power to adjudicate’),
- Section 15T (relating to ‘Appeal to SAT’),
- Section 30 (relating to ‘SEBI’s power to make Regulations’).
SC primarily referred to 2 judgments which dealt with similar expert bodies. The Court relied on its own ruling in PTC India Ltd. vs. Central Electricity Regulatory Commission, wherein it had held that Appellate Tribunal for Electricity has no jurisdiction to decide the validity of regulations framed by the Central Electricity Regulatory Commission u/s 178 of Electricity Act, 2003. The validity of the Regulations may, however, be challenged by seeking judicial review under Article 226 of the Indian Constitution. SC also relied on its own ruling in BSNL Vs TRAI, wherein it had held that Telecom Disputes Settlement and Appellate Tribunal [‘TDSAT’] does not have such jurisdiction on the Regulations being framed by TRAI u/s 36 of the TRAI Act, being legislative in nature.
SC noted that the presiding officer u/s 15M of the Act has to be a sitting or a retired Judge of the SC, or a sitting or retired Chief Justice of a High Court (HC), or is a sitting or retired judge of a HC who has completed not less than 7 years of service as a judge in a HC. The Apex Court opined that “This is one indicia of the fact that the Appellate Tribunal, being manned by a member of the higher judiciary, is intended to hear appeals only against quasi-judicial orders.”
SC further noted that u/s 15T(3), every appeal against an ‘order’ is to be filed within 45 days from the date on which copy of the order made by SEBI or the adjudicating officer, is received by him. However, SC stated that “Generally administrative orders and legislative regulations made by the Board are never received personally by ‘the person aggrieved’ ”.
SC perused section 15T(5) of the Act that requires a copy of every order made by SAT to be sent to SEBI, parties to appeal and concerned adjudicating officer. On this aspect, SC observed that “The concerned adjudicating officer and the parties to the appeal obviously refer only to persons involved in a quasi-judicial proceeding.”
“It is clear on a conspectus of the authorities that it is orders referable to Sections 11(4), 11(b), 11(d), 12(3) and 15-I of the Act, being quasi-judicial orders, and quasi judicial orders made under the Rules and Regulations that are the subject matter of appeal u/s 15T”. The Court concluded that “Administrative orders such as circulars issued under the present case referable to Section 11(1) of the Act are outside the Appellate Jurisdiction of the Tribunal”.
Impact on the Securities Market
Considering the SC’s judgment, the SAT can now only hear quasi-judicial orders passed by SEBI Members or its Adjudicating Officers. Maybe in near future, quite a few number of cases challenging SEBI Circular before the Appellate Tribunal would be withdrawn.
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.
However, in certain cases like – e.g. those dealing with Initial Public Offers (IPOs) or Follow-On Public Offer (FPOs), SEBI may reject the application filed by a company. The reason for such rejection may include non-compliance of SEBI Regulations, adverse remark by Merchant Banker in the Due Diligence Certificate, non-adherence with eligibility criteria prescribed by SEBI, etc. Such order may similarly be interpreted to be an ‘administrative order’. In light of the Apex Court’s ruling, an aggrieved company would not in a position to appeal against the SEBI’s order. The only way SEBI Circulars can now be challenged will be by filing a writ before a High Court. Accordingly, the SC has expressly granted NSDL the liberty to take appropriate steps in judicial review proceedings to challenge SEBI Circular in accordance with law.
 [(2010) 4 SCC 603]
 [(2014) 3 SCC 222]