The Securities & Exchange Board of India (Sebi) has moved the Supreme Court alleging that the sectoral tribunal has set a wrong precedent by arrogating the powers vested in the market regulator.

A Bench headed by Justice SH Kapadia sought response from textile manufacturer S Kumars Nationwide Ltd and Bombay Stock Exchange (BSE) on Sebi?s plea alleging that the Securities Appellate Tribunal (SAT) had usurped its powers. It said SAT can neither exercise powers which were identical to that of Sebi under the Sebi Act nor make regulations, conduct investigations or pass any directions that were being exercised by the market regulator.

“The judgment of SAT sets a wrong precedent (where) a market participant may seek to regularise a violation of the issue of capital and disclosure requirements (ICDR) regulations by requesting SAT to exempt it from compliance with the said regulations,” Sebi alleged.

Attorney general GE Vahanvati, appearing for Sebi, said the tribunal should have referred the case of market participant S Kumars to the market regulator instead of giving direction to BSE to grant in-principle approval to the issue, allotment and listing of shares issued by the company to its promoters on a preferential basis. The exchange had, however, rejected approval to the company.

Stating that the powers of SAT were not a superset of the powers of the original authority, the market regulator said the sectoral tribunal had grossly erred in concluding that it (SAT) could issue the same direction and exercise the same powers as being vested in it (Sebi). The tribunal, on August 7, 2009, had passed its order on the plea of a company, S Kumars Nationwide.

The company had raised loans of around Rs 850 crore from various banks and financial institutions. Since it was unable to repay such loans, one of the lenders filed an application with the corporate debt restructuring cell (CDR) as per the framework specified by RBI for restructuring the debts of the borrower.

The package provided that the promoters of the company should pledge their entire equity shares with the lending banks and should bring Rs 230 crore.

The CDR approved the proposed restructuring package submitted by the lender bank. In the compliance with the conditions of the CDR package, the promoters pledged the equity shares held by them with the bank. S Kumar Enterprises (Synfabs), one of the promoters of the company, subscribed to the shares of the company valuing Rs 15 crore by way of preferential issue in order to comply with the conditions pertaining to promoters bringing in Rs 230 crore. These shares on preferential basis were allotted after obtaining the scantion of the shareholders.

Similarly, some other promoters were allotted shares on preferential basis for an amount of Rs 5 crore to comply with the conditions of CDR package.