Section 11B ruling sharpens Sebis teeth

Written by Markets Bureau | Mumbai, May 16 | Updated: May 17 2008, 06:38am hrs
A ruling by the Supreme Court this week on a petition filed by Ritesh Polyesters Ltd has come as a shot in the arm for capital market regulator Sebi. The ruling pertains to the use of section 11B of the Sebi Act, 1992, by the watchdog against erring market intermediaries.

The ruling is significant because it not only upholds Sebis powers under section 11B, but also allows it to use relevant penal provisions of other statutes like the Companies Act, 1956, and the Indian Penal Code.

Sebi had barred both the promoters and the company from accessing the capital market for ten years following certain irregularities in the Ritesh Polysters 1995 IPO. The Securities Appellate Tribunal subsequently backed that move.

Upholding Sebis decision, the Supreme Court division bench comprising Justice SB Sinha and Justice Lokeshwar Singh Panta in its ruling delivered on Tuesday stated, We also grant liberty to the authorities to proceed against the offenders not only for other or further charges to which they made themselves liable under the Sebi Act but also under the Companies Act, 1956, and other penal statutes, if attracted.

This part of the ruling has brought cheer to the Sebi officials, who said this enhanced the power of the regulator. Said Somashekhar Sundaresan, partner, J Sagar Associates, If such a ban is held to be remedial and not punitive, it would be a shot in the arm for Section 11B as it stood, although Sebi doesnt need 11B as it has since been vested with powers under section 11(4), which can be used before, during or after an enquiry has been initiated or conducted.