The Gujarat High Court has said that, "in our considered opinion, the very approach and the principles on which this question has been decided by the learned single judge were not at all germane. (The single judge had taken reliance on decisions rendered in the context of fiscal and taxing statutes where the approach to interpretation is strict and generally with an inherent bias towards the assessee tax-payer. This basic approach was held to be incorrect.)

"Because, here is a case in which the court is concerned with the provisions of a comprehensive legislation, which was enacted to give effect to the reformed economic policy investing Sebi with statutory powers to regulate the securities market with the objective of ensuring investors' protection, the orderly and healthy growth of the securities market so as to make Sebi's controlover the capital market effective and meaningful.

"The Sebi Act is an Act of remedial nature and, therefore, the preset cases could not be compared with the cases relating to the fiscal or taxing statutes or other penal statutes for the purposes of collection of levy, taxes etc."

Thus, this decision will be a benchmark for approach to future decisions, unless dissented from or reversed by the Supreme Court. It will also act as a significant boost to Sebi in its future actions.

There was another point made which also has far reaching implications. It was argued before the court that Sebi was only empowered to make "measures" and this should mean laying down regulations and similar guidelines for general application. The argument was that the framework of the Sebi Act was to permit Sebi to make general regulations under supervision of Parliament and it was not intended that Sebi should have powers to give directions in specific cases, unless permitted by the regulations.

The high court did not agreewith this point also. It said that no restrictive scope can be ascribed to the word "measures". It said that such a course would defeat the purpose of the Act and the role of Sebi in the capital market environment which is ever-changing and where one could not always foresee what could happen each time.

In the words of the court, "merely because in section 11(2) it is provided that `the measures referred to therein may provide for' cannot be taken to mean that such measures have to be laid down in advance. It is a measure of common knowledge that Sebi has to regulate a speculative market and in case of speculative market varied situations may arise and all such exigencies and situations cannot be contemplated in advance and, therefore, looking to the exigencies and the requirement, it has been entrusted with the duty and function to take such measures as it thinks fit.

"Thus, the measures cannot be laid down as a one time exercise to be followed in defined cases. Sebi has to rise to the occasion fortaking appropriate measures to combat even such situations in the speculative market, which may or not be conceived in advance. We have to, therefore, consider and interpret the power of Sebi under the provisions so as to see that the objects sought to be achieved by Act is fully served, rather than being defeated on the basis of any technicality."

Based on these points, it held that Sebi was fully empowered to take such specific steps that it thinks fit, including, what had happened in that case, forfeiture of money.

Let us now see what could be some of the implications that could narrow down the scope of this decision and whether there is scope for further development in the law which could modify, reverse or even broaden the statements in this decision.

First of all it must be noted that this was a case where Sebi had asked retention of the money only on an interim basis. It had not given any final order, either of retention, forfeiture or even as to its findings in the matter. This was repeatedlyreiterated by the court, particularly for meeting the contention that parties were not given adequate hearing.

Thus, it was not that the parties were finally subject to some punishment or that their money was irretrievably gone. Sebi was to hear further the parties and then decide on the course of action. The purpose of retaining the money was that if this was not done, it would be difficult to retrieve the money later if it were held that it needs to be forfeited.

Secondly, this was a case where it was found that there were, on the face of it, circumstances which prima facie indicated price manipulation and other irregularities.

Thirdly, the court repeatedly stated that the decision of Sebi was on the facts of the case. Thus, it could imply that under different circumstances, the answer could be different. This could implicitly place on the powers of Sebi though the decision of the court does not give guidance as to the specific limits to such powers.

It is also respectfully submitted that thisdecision lays down the powers of Sebi in too broad a manner. It is respectfully submitted that the framework of the Sebi Act does not suggest unlimited powers to Sebi but it was intended that there would be some transparency and, at the very least, subject to supervision of Parliament.

Nevertheless, it rightly takes a radical departure from the erstwhile technical approach taken. To conclude, this decision would bring good news to capital markets in general and Sebi in particular, though more development in this approach in terms of modification and fine-tuning is also certain.

(The author is a Mumbai-based chartered accountant)