Since then, the Gujarat High Court has given a far reaching judgment which turnsthe proverbial table in favour of Sebi but, which at the same time, raises concern of the reverse nature-i.e, that, respectfully stated, perhaps the law has been too broadly interpreted. If indeed this approach is consistently followed, it would mean, perhaps as an extreme view, that what Sebi would order would be the law and parties would have no way of predicting what would be the outcome of their actions and what actions would be punished and what would be condoned or permitted. Let us, with this brief discussion, review this decision and then review the profound implications of the remarks of the court.

In this case (Sebi vs Alka Synthetics (1998) 19 SCL 460(Guj.)), it was alleged that a few parties had indulged in price manipulation in the stock market. Share prices were allegedly inflated artificially and the parties who sold the shares short were unable to deliver the shares since practically no shares were available in the market and also subsequently the price had increased manifold. In view ofthis, the stock exchange had to conduct an auction for these shares where shares were offered at a very high price. Thus, huge sums became dues from the parties who had sold the shares short originally and who had now to buy the shares to meet their obligations. To cut the story short, Sebi entered into the picture and, after preliminary investigations, concluded that there was a prima facie case of price manipulation. The portion of such allegedly ill-gotten gains were ordered to be credited to the investors protection fund till the final completion of the investigation. One of the important questions was whether Sebi had any powers to order such impounding more so when there was no specific power granted to do so in such specific circumstances. This is where the decision and remarks of the court are worth considering in detail. It may be stated that this case was originally decided by a single judge and the present decision was rendered in appeal against the decision of the said single judge.

It would beworth reviewing the provisions of the law empowering Sebi to take actions and measures. Broadly stated, the scheme of the Sebi Act, 1992, is that Sebi is empowered to issue regulations for a large of specific and general areas. Though these regulations can be issued by Sebi, these are to be placed before the Houses of Parliament wherein they can be modified. However, there are two provisions in the Act which provide for very general powers and which became the bone of contention in the case.

Section 11 empowers Sebi to take such measures as it thinks fit "to protect the interests of investors in securities and to promote the development of, and to regulate the securities market". Clearly, these words have the broadest connotation and would cover practically all aspects of the securities markets. The crucial word which was discussed in the case was "measures".

Section 11B empowers Sebi even further to give the broadest of directions except that these directions can be given to specified persons such asbrokers, etc.

The question therefore is what is the extent of such powers and what are the limits to it, if any? Can Sebi give any direction that it thinks fit and take any measure in any form that it thinks fit? More specifically, under the case in context, can Sebi forfeit allegedly ill-gotten gains? The answers to these questions will perhaps significantly determine the extent to which the Sebi, which till now has often been called the toothless regulator, will be able to enforce its powers and maintain some semblance of order in the capital market. It is specifically this issue that the Gujarat High Court grappled by the horns and let us see what they stated. Firstly, the court laid down a very important principle in interpretation of Sebi laws which marks a remarkable departure from the approach taken in several cases and more so in the single judge decision of that court which whose appeal the court was considering. The single judge had taken reliance on decisions rendered in the context of fiscal andtaxing 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.

The author is a Mumbai-based chartered accountant