Recent Ordinance amending securities laws has been discussed here and here in this blog. However, one concern arises in respect of the amendment relating to Consent Orders.
It may be recollected (as, for example, reported here) that the legal basis of the Guidelines relating to Consent Orders was questioned before the Delhi High Court by a PIL. Had this petition been successful, it was possible that the hundreds of consent orders passed till date would have been set aside. It appears that to overcome this concern, the Ordinance has introduced, with retrospective effect from 20th April 2007, Section 15JB empowering SEBI to settlement of proceedings. It may be recollected that 20th April 2007 was the date of the original Guidelines for Consent Orders.
Interestingly, the new Section 15JB(2) states that SEBI may agree to a proposal for settlement on such terms “as may be determined by the Board in accordance with the regulations made under this Act”.
Section 15JB(3) further reads as follows:-
“The settlement proceedings under this section shall be conducted in accordance with the procedure specified in the regulations made under this Act.”.
Needless to emphasise, no Regulations have been framed till now for settlement proceedings. Only Guidelines were issued in the form of a circular (“the Guidelines”).
Have the lawmakers, in their desire to overcome objections against the legal validity of the Consent Orders, introduced a fresh concern, even if technical? Would this mean the earlier Guidelines face this new legal defect of not being Regulations? And thus the Consent Order passed thereunder face an entirely new ground for being set aside?
One hopes that at the time when the Ordinance is finally enacted, this issue is suitably addressed. It would also be interesting to see how the Regulations, when issued, are framed.
There is another angle to this. It may also be recollected that the stated basis of the Guidelines was Section 15T(2) which read as follows:-
“No appeal shall lie to the Securities Appellate Tribunal from an order made –
(a) by the Board on and after the commencement of the Securities Laws (Second Amendment) Act, 1999;
(b) by an adjudicating officer,
with the consent of the parties.”
Now whether this provision is sufficient legal basis for the Consent Order Guidelines is a separate question. The point is that this sub-section (2) has now been omitted by the Ordinance, but with prospective effect. Thus, from 20th April 2007, till the date of this Ordinance, two provisions simultaneously exist in relation to passing of Consent Orders. It is not clear whether giving prospective effect to omission of this section was deliberate to retain this provision which was the stated basis of the Guidelines. If this is the case then, reading the newly introduced Section 15JB, it would appear that the PIL questioning the basis of the Guidelines would remain alive and of concern. However, this too is not entirely satisfactory since there would be two provisions dealing with the issue, and the new one apparently introduced to overcome the earlier possible defect.
And, apart from how the past issues are finally resolved, yet another concern remains for Consent Orders from the date of the Ordinance onwards. Since that date, no Regulations are issued for Consent Orders as Section 15JB requires. Section 15T, which is the stated basis of the Guidelines, also does not exist anymore now. So the question is whether SEBI can issue any Consent Orders at all now, till Regulations for Consent Orders are notified?