The Hindu Business Line : Out of mind to be out of `site'

"GENTLEMEN, I take it that we are all in complete agreement on the decision here," General Motors chief, Alfred P. Sloan, had declared during a meeting. Everyone present nodded. "Then, I propose that we postpone further discussion," he continued, "to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

Back on home turf, there seems to be a lot of disagreement between the Securities and Exchange Board of India (SEBI) and the Securities Appellate Tribunal (SAT).

The spat has reached an extent where it is reported that SEBI is not posting on its site SAT orders.

There can be no two views on the granting of a right of appeal to every person in the country or on the rights of citizens to get access to information.

Penalties

One of the main bones of contention appears to be the penalties levied by SEBI on companies that have turned a blind eye to the law book. However, penalty needs to be levied depending on the weight of the purse of the person on whom it is proposed to be levied.

It is common knowledge that SEBI has levied penalties amounting to almost Rs 1 crore on two companies which have successfully achieved the distinction of being non-performing assets in the books of almost every bank in the country. This seems as difficult to achieve as penalising and realising the penalty levied from vanishing companies.

One somehow gets the impression that if the nomenclature of these companies had been "vanished" companies, there would not have been any penalty levied. SAT, quoting a recent Supreme Court decision, ruled that the levy of penalty has to be decided on the basis of "ability to pay" and reduced the penalty to less than Rs 1 lakh.

Even in cases relating to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 a majority of the cases are against the monetary hit that companies have to take.

This is but natural considering the fact that most of SEBI norms are procedure-based unlike to the income-tax law and, hence, give limited chances for interpretation.

A catena of decisions

Just like the Income Tax Appellate Tribunal, SAT has also passed some landmark judgments during its existence.

The one on insider trading issued some six months back comes immediately to mind. However, it would be a fallacy to state that SAT has always taken the cudgels against SEBI.

In Suman Motels Ltd vs SEBI (2004 CC B-538), SEBI issued an order for the payment of money to all investors within one month since the company refused to register itself with the Regulations nor did it comply with the requirements of a Collective Investment Scheme that it floated.

SAT backed SEBI in this decision. The Collective Investment Scheme of PACL India Ltd was rejected by the Rajasthan High Court in PACL India Ltd vs Union of India (2004 45 CC B-133) since none of the conditions of the scheme as pronounced by SEBI was followed by the company.

In CIL Securities vs SEBI (2004 45 CC B-575), the company had made an application to SEBI to carry on a business in the derivatives segment. SEBI was taking its time to make a decision which made the impatient approach SAT.

SAT dismissed the fervent plea of the company that SEBI had failed to dispose of the application within a stipulated time. In N. Khemani and Company and Anr. vs SEBI (2004 45 CC B-573), SAT instructed the company to cooperate with SEBI and directed SEBI to pass orders as expeditiously as possible. In D. A. Gadgil vs SEBI (2004 45 CC B-145), the appellant had been affected by certain evidence and requested for a cross-examination of the same. SEBI would have nothing of it but SAT permitted the cross-examination.

In the same case, SEBI passed an order without issuing a show-cause notice and affording Gadgil an opportunity of being heard. SAT was not too pleased with the decision, and ruled it to be against the principles of natural justice.

SEBI issued a circular directing the stock exchanges to debit the amount of arbitration award from the security deposits of its member which resulted in a spate of legal cases. SEBI got the blessings of the Bombay High Court to instruct the stock exchanges to go ahead with the debiting in Banhem Securities (P) Ltd vs National Stock Exchange (2004 45 CC B-296).

Path to tread

A cursory glance at the decisions above reveals the fact that SAT has been fair in its judgments.

When SEBI has the right of appeal to a High Court against any bizarre decisions, if any, handed out by SAT, does it have the right to prevent dissemination of information to Netizens of the country?

The legal buzzwords "obstruction of justice", "denial of fundamental rights" and "principles of natural justice" ring a bell that SEBI is treading a path which only losers in courts of law would tread.

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

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