SUPREME COURT GIVES STATUTORY SHIELD TO SEBI FROM SECURITIES APPELLATE TRIBUNAL (SAT)

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THE Supreme Court has ruled that the Securities Appellate Tribunal (SAT) has no discretionary power to interfere with orders passed by capital market regulator Securities & Exchange Board of India (Sebi). Allowing Sebi's plea, the court said the tribunal has to do what is prescribed under the statute.
"When something is to be done statutorily in a particular way, it can only be done that way. There is no scope for taking shelter under a discretionary power," said a bench comprising Justice Arijit Pasayat and Justice LS Panta.

The court also turned down the plea that the tribunal is empowered to pass orders on an appeal as it thinks fit, confirming, modifying or setting aside the order of Sebi.

Sebi had filed two appeals against the order passed by the tribunal. In one case, Saikala Associates acted as a sub-broker at the National Stock Exchange with 2 NSE Members - PCS Securities and Zen Securities - without being registered as a sub-broker with Sebi between 2000 and May 2002. It had created a value of Rs 403.29 crore in breach of section 12(1) of the Sebi Act, 1992.

In the second case, Shilpa Stock, registered as a Sebi broker while executing trades on behalf of its client Kamlesh Shroff, had dealt with Jairam Enterprises, an unregistered sub-broker. Again, it was in violation of Sebi rule.

The tribunal had said the proved charges were not serious enough to warrant suspension of certificate of registration and had set aside the Sebi order. Sebi challenged this in the apex court.

Indeed, this is not the first time that Sebi and SAT have been at loggerheads. Only last year, Sebi filed 250 appeals with the tribunal, of which, 73 were dismissed. Sebi's directives on Sasken Communication Technologies- public notice for buyback of shares and Heidelberg Cement AG's payment of non-compete fees to the minority shareholders of Mysore Cements were overruled by the tribunal.

And that's not all. The regulator has also been hauled up by SAT for legal lapses. There have been many instances where SAT pulled up Sebi on the ground that it did not hear the involved entities in a dispute.

The provisions of section 12(3) of the 1992 Act confer power on Sebi to suspend or cancel a certificate of registration in such manner as may be determined by regulations, provided that no order under the said section will be made unless the person concerned has been given a reasonable opportunity of being heard, the appellant had said.

It had further said as per Rule 3 of the Sebi (stock brokers & sub-brokers) Rules, 1992, existing brokers & sub-brokers were allowed to continue business pending registration but no new person commencing the business of the broker or sub-broker after August 20, 1992 could do the business pending registration and could commence only after being registered.

Allowing the plea, the apex court said, "In the instant case, the position of broker/sub-broker in case of violation is statutorily provided under Section 12 of the Act, which has to be read along with Rule 3 of the Rules. No power is conferred on the tribunal to travel beyond the areas covered by section 12 and Rule 3."

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