Tuesday, April 11, 2017

The Supreme Court on the SAT's jurisdiction over SEBI Circulars


[Guest post by Amitabh Robin Singh, who is a corporate lawyer practising in Mumbai]

Last month, the Supreme Court of India ("SC") in the case of National Securities Depository Limited v. Securities and Exchange Board of India ruled that the administrative and legislative orders made by the Securities and Exchange Board of India ("SEBI") are not assailable before the Securities Appellate Tribunal ("SAT").

This controversy spawns from an administrative circular which SEBI had issued in 2005 relating to the levy of dematerialization charges by depositories and depository participants.

The SAT, by it judgement of September 2006, held that the word "order" as used in section 15T of the SEBI Act, 1992 ("Act") has not been defined and is very wide and would include all orders of SEBI, regardless of the nature of the relevant order.

Section 15T of the Act is reproduced below:

"(1) Save as provided in sub-section (2), any person aggrieved,-

(a) by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made thereunder, or

(b) by an order made by an adjudicating officer under this Act,

may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.

(2) ***

(3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Board or the adjudicating officer, as the case may be, is received by him and it shall be in such form and be accompanied by such fee as may be prescribed:

Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

(4) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

(5) The Securities Appellate Tribunal shall send a copy of every order made by it to the Board, the parties to the appeal and to the concerned adjudicating officer.

(6) The appeal filed before the Securities Appellate Tribunal under subsection (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal."

The SC went on to analyse various subsections of section 15T and other sections of the same chapter (VIB) of the Act in a light which reflect that the legislature intended for this section to only permit appeals from orders of SEBI which are passed in the exercise of its quasi-judicial functions. A few of these are discussed below.

First, the SC referred to section 15M of the Act which mandates that the presiding officer of the SAT be either a sitting or retired SC Judge or a sitting or retired High Court Judge with at least 7 years on the bench of a High Court. The SC inferred that these criteria indicate that the intention was for the SAT to only hear appeals in relation to quasi-judicial matters, due to the fact that the SAT will be under the charge of a member or an erstwhile member of the higher judiciary.

The argument, which in my opinion, carries the most force is the reading given by the SC to section 15T(3) of the Act. Section 15T(3) lays down that an appeal is required to be filed within 45 days from the date on which a copy of the order is received by such person. The SC here pauses and points out that administrative orders and legislative regulations are not received personally by the particular aggrieved party. This reading of the SC throws a great deal of light on what the legislature may have been intending when it contemplated the appeal of "orders" passed by SEBI.

The SC also went on to refer to section 15T(5) of the Act which the requires that a copy of each order made by the SAT be provided to SEBI, the parties to the appeal, and the concerned adjudicating officer. The SC read the use of the terms "concerned adjudicating officer" and "parties to the appeal" to "obviously" only refer to parties to a quasi-judicial proceeding. Hence the appeal can only lie from a quasi-judicial proceeding and not from a matter stemming from an administrative order or regulatory legislation.

Further, the SC went on to contemplate two similar precedents: the first being PTC India Limited v. Central Electricity Regulatory Commission. In this case, it was held that Appellate Tribunal for Electricity had no jurisdiction to sit in appeal over regulations framed under the Electricity Act, 2003. However, the order did go on to say that these are open to challenge under the writ jurisdiction granted to High Courts under article 226 of the Constitution of India.

Similarly, in the second case of Bharat Sanchar Nigam Limited v. Telecom Regulatory Authority of India and Ors., it was held that the Telecom Disputes Settlement and Appellate Tribunal had no jurisdiction to assail regulations framed by the Telecom Regulatory Authority of India ("TRAI") under the TRAI Act, 1997, as they are legislative in nature.

The SC then discussed the case of Clairant International Limited and Anr. v. SEBI, and quoted the following text:

"The Board is indisputably an expert body. But when it exercises its quasi judicial functions; its decisions are subject to appeal. The Appellate Tribunal is also an expert Tribunal."

Through this paragraph, it may be implied that appeals from matters which are not in exercise of SEBI's quasi-judicial functions, will not be maintainable.

Looking at the above, the SC concluded that administrative orders (such as in this case) are not within the appellate jurisdiction of the SAT, however there is full liberty to challenge the impugned circular in accordance with law.

This judgement of the SC will reduce the volume of cases pending before the SAT by eliminating certain classes of cases altogether. However, concerns have been raised as to whether the grey area between administrative and quasi-judicial decisions may result in difficulties for parties to appeal certain orders passed by SEBI.

Towards this end, the SC, its judgement, has discussed what constitutes a quasi-judicial order. The SC relied on cases[1] that contemplated three tests laid down to determine a quasi-judicial action in which are as follows:

(1) There must be legal authority;

(2) This authority must be to determine questions affecting the rights of subjects; and

(3) There must be a duty to act judicially.

The SC then laid down that even if there is no lis between the parties, as long as the three tests mentioned above are followed, the power conferred or exercised will be quasi-judicial.

To shed further light upon the delineation between administrative and quasi-judicial decisions by referring to the case of Shankarlal Aggarwala v. Shankarlal Poddar. While in this judgement it was admitted that it is not always easy to distinguish between an administrative and judicial order, it did opine that an order which is directed to the regulation of or supervision of matters will be administrative, while an order which decides the rights of parties, and requires the exercise of discretion will be a judicial order.

Hence, as it can be seen, the SC has attempted to throw light on the difference between administrative and judicial/quasi-judicial orders as to minimize any disputes as to the nature of an order. Such disputes may naturally arise now that certain classes of orders have been precluded altogether from being assailed before the SAT. While this decision should reduce the burden of cases brought before the SAT, it will be interesting to observe how the jurisprudence on this further develops.

- Amitabh Robin Singh


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