Whether SEBI at all had power to settle disputes by Consent Orders has been questioned earlier before Delhi Court and it appears that the matter is still pending. Seemingly to pre-empt this issue, an Ordinance had been passed amending the SEBI Act and related statutes, which Ordinance has been re-issued several times. This issue has been discussed several times earlier in this blog, with this post on the latest development. That post also gives links of earlier posts on the issue.
The Securities Appellate Tribunal (“SAT”) has now considered an issue arising out of the amendments made by that Ordinance, and Regulations issued pursuant thereto. The essential question is whether an appeal can lie against an order of SEBI rejecting an application for Consent Order. SAT has held that, under the amended law, such applicant has absolutely no right of appeal.
The distinction between the earlier law and the law amended by the Ordinance as explained by SAT is worth emphasizing. The earlier section 15T(2) of SEBI Act barred appeal against an order made “with the consent of the parties”. This would have left orders rejecting application for consent appealable. The Ordinance omitted Section 15T(2) with effect from 20th April 2007 and inserted Section 15JB retrospectively from same date. Section 15JB barred appeal “against any order” under that section dealing with application for consent orders. The SAT thus held that, in view of such retrospective amendment, the SEBI’s order rejecting the consent application was not appealable.
However, the SAT made several adverse observations while giving the ruling. The following few important ones are worth noting.
a) It said that SEBI was wrong in delaying matter for years not giving documents required by the applicant on various grounds. And then providing the documents to the applicant.
b) It also said that SEBI was wrong in denying adequate opportunity to the applicant to present its case. SEBI gave, after a long delay, voluminous documents desired by the applicant. However, without giving time to examine such documents as desired by applicant, it passed an ex-parte order rejecting the application.
c) SEBI’s argument that the consent application was not maintainable because it fell within a restricted category was also not accepted by SAT, since this ought to have been known to SEBI from inception. Even more so since SEBI still had discretion to consider, on facts, cases falling in such categories.
Despite these observations, SAT effectively said that its hands were tied down by the amendments which had retrospective effect and barred appeal against any order.
It appears almost certain, particularly considering the stakes involved (the allegation is that illegal gains of Rs. 513.12 crores were made), that the Order of SAT would be appealed against before the Supreme Court. Many more grounds may also be raised before the Supreme Court including the vires of the amendments, whether they give unbridled powers to SEBI, whether SEBI need not observe rules of natural justice while considering such applications, etc. The adverse observations of SAT most certainly would come to aid of the applicant.
Hopefully, assuming the appeal is made, the Supreme Court will also resolve other issues relating to mechanism of consent orders and those arising out of the retrospective amendments. The Court may decide once and for all whether SEBI has powers, under the earlier law and the amended law, of passing Consent Orders. This ruling may also thus clear the air on whether Consent Orders passed till now are valid in law. It may be particularly recollected that the earlier law did not have specific and clear provisions empowering SEBI to pass consent orders. The amended law, though it did give such powers, had raised fresh concerns as discussed in earlier posts.
Apart from such basic issues, it is submitted that even otherwise the ruling of SAT that the orders relating to consent application are wholly non-appealable is questionable. The law provides for several pre-conditions and procedures subject to which the consent order may be passed. Further, principles of natural justice would in any case have to be followed. Such order would also have to be in accordance with Regulations made. The Order of SEBI would, it is respectfully submitted, thus be questionable on several grounds. It is submitted that SAT’s blanket denial of such grounds of questioning in appeal of such orders is not correct.
Thus, it would be interesting to watch the progress of this case. The journey would surely be long. Assuming the order of SAT is appealed against, the matter could be restored back to SEBI for fresh consideration of the application for consent. The outcome of such proceedings themselves could be matter of appeal.
Even if the appeal is rejected (or not made), the matter would go back to SEBI for considering the allegations on merits, which could go into a fresh round of appeals.
An observation in passing is worth making. Consent Orders can be compared with arbitration. Like arbitration, Consent Orders too are meant for speeding up and even substituting litigation. As in arbitration, appeals are barred in Consent Orders too. However, if even consent orders end up in prolonged litigation instead of speeding it up, then the purpose may not be served. And thus, the classic and oft-quoted words of lament of the Supreme Court (in Guru Nanak Foundation vs Rattan Singh & Sons) could apply to consent orders too:-“Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedure claptrap and this lead them to Arbitration Act 1940. The way in which the proceedings under the Act are conducted and without exception challenged in courts has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear testimony that the proceedings under the Act have become highly technical, accompanied by unending prolixity at every stage, providing a legal trap to the unwary. An informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the courts been clothed with legalese of unforeseen complexity.”