Authority And Understanding

Updated: Sep 26 2003, 05:30am hrs
In October 2002, the Securities and Exchange Board of India (SEBI) Act was amended to make the Securities Appellate Tribunal (SAT) more powerful than it has ever been before. A SAT order can be appealed only at the Supreme Court of India and not the high courts. Moreover, an appeal is allowed only on matters of law and not of fact. The SAT itself was expanded from a one-member body to a more senior, three-member panel headed by a retired judge. But it took a year for the government to find the time to reconstitute SAT. The present Member SAT, C Achuthan, has certainly served his term with distinction and integrity, but there is clear merit in the regulators plea that an appeal against the SEBI chairmans orders should be to a broader-based body, headed at least by a high court judge. Especially because the Appellate Authority that earlier heard orders against SEBI comprised the finance secretary and two other secretaries of the government of India. The appointment of Justice Shamlal Kumar Sen (former Chief Justice of the Allahabad High Court), N Lakhanpal, former Director General of Foreign Trade and B Samal, former chairman of the Allahabad Bank clearly satisfies the seniority criteria, but it is no guarantee that other problems wont emerge.

For instance, Mr Achuthans orders have been an acute source of embarrassment for SEBI. In recent times SAT has, more often than not, overturned SEBIs decisions in high-profile cases, or exposed the regulators shoddy investigation and presentation of cases. This certainly fulfilled the objective of ensuring that there was fair appeal against SEBIs orders; but it also created an impression that any SEBI order, however correct, had a good chance of being over-turned by SAT. Consequently, few companies or regulated entities ever accepted the regulators orders without a fight and tied SEBI up in unnecessary litigation. A broad-based SAT, headed by a former high court chief justice, would hopefully discourage some of the frivolous appeals. But that would depend on whether the newly re-constituted SAT is able to deal competently with the complicated capital market transactions governed by an even more complex and price-sensitive set of regulations. Ideally, SAT ought to have at least one Member who has some experience in dealing with capital markets in order to ensure a speedy disposal of appeals. This is especially important because the amended SEBI Act also empowers it to levy hefty fines and penalties on intermediaries or stop their business without a hearing. A knowledgeable SAT would play an important role in ensuring that SEBI uses its powers judiciously and backs up preliminary action with evidence which is something that the regulator has often failed to do over the last seven years.