The Hindu Business Line : Consent is bone of contention

"GIVE a dog a bad name and hang it" is an old adage. This is exactly what the Securities and Exchange Board of India (SEBI) is doing in the garb of ensuring that the regulatory provisions are complied with. SEBI, it is learned, is sending out communications to several companies, after making a microscopic study of the declarations made under the regularisation scheme or on feedback from the stock exchange.

Such feedback is about companies that have not complied with the provisions of the takeover code for years dating back to 1997 onwards and, therefore, attract the penal provisions under Section 15A of the SEBI Act read with Section 24 (penalty and prosecution respectively). It may be noted that the 1997 model has been replaced by a revised one in 2002.

More important, the communication also says that an adjudicating officer under Section 15 I of the SEBI Act has already been appointed to adjudicate and enquire into the aforesaid violations, which means proceedings against errant companies have been initiated and the said officer is required to adjudicate and enquire into the aforesaid violations. Not long back, SEBI had introduced the SEBI Regularisation Scheme 2002. It was primarily aimed at offences under the takeover code.

Under the code, certain categories of persons are required to disclose their shareholdings and/or control in a listed company to the respective companies; and such companies, in turn, are required to disclose the said details to the stock exchanges where their shares are listed.

The scheme enabled one who may have inadvertently or otherwise failed to disclose the required information under various regulations or made belated disclosures to come clean and take the advantage of the scheme, thereby avoiding the hassle of prosecution/penalty, and so on, as provided under Section 15A of the SEBI Act by fresh disclosures on payment of the lumpsum as required in the table under the scheme. That the said scheme was itself without any authority is another matter.

Crux of the problem

The SEBI communication says that in view of Section 15T 2(b) an order can be passed by an adjudicating officer on the consent of the party. It further goes on to say that "SEBI has decided to consider your request for a consent order, if you are willing to pay an amount of Rs._______ as penalty for the aforesaid violations".

The draft of the consent terms reads thus:

"We hereby consent to pay Rs xxxxxxx as penalty under Section 15A of the SEBI Act and also agree for the consent order by the learned adjudicating officer (AO) accordingly. We are aware that the proposal for consent order need not necessarily be accepted by the learned AO and that it is the discretion of the learned AO to accept or not to accept the proposal."

The basic, issues, therefore, are:

Where from does SEBI derive power to seek, a request for consent terms?

Requiring companies to make a request for consent terms under sub-section 2(b) of Section 15T waives their right to be personally heard. This amounts to denial of natural justice and pronouncing a person guilty without his being heard. A mockery of justice, indeed.

Does Section 24 B, which delegates power to the Central Government with regard to certain offences, apply here? The section reads thus:

"The Central Government may, on recommendation by the Board, if the Central Government is satisfied that any person who is alleged to have violated any of the provisions of this Act or the rules or the regulations made thereunder has made a full and true disclosure in respect of the alleged violation, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act, or the rules or the regulations made thereunder or also from the imposition of any penalty under this Act with respect to the alleged violation:

"Provided that no such immunity shall be granted by the Central Government in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of application form grant of such immunity: "Provided further that recommendation of the Board under this sub-section shall not be binding upon the Central Government.

"An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Central Government, if it is satisfied that such person has, in the course of the proceedings, not complied with the condition on which the immunity was granted or had given false evidence and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the contravention and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted."

On a careful reading of this section it is abundantly clear that it cannot be invoked. Once on investigating officer is appointed he is seized of the complaint, the complainant, that is SEBI, cannot interfere with the proceedings. Such an attempt by SEBI impeaches on the independence of the investigating authority.

Penalty is a punishment. Can a person be punished for an alleged offence without proving to the hilt that the offence has been committed?

(The author is a Pune-based chartered accountant.)