The ongoing friction between SEBI and Securities and Appellate Tribunal (SAT) has once again come to the fore with Justice Tarun Agarwala and judicial member MT Joshi of the appellate tribunal pulling up market regulator SEBI for errors in its administrative and legal work.

Show-cause after 7 years

In less than a month after calling out SEBI for ‘judicial dishonesty’ and ‘contempt of court,’ the SAT has now raised the charge of ‘judicial indiscipline.’

SAT was irked with SEBI’s adjudicating officer (AO), in a recent order, over a delay of seven-and-a-half years in issuing a show-cause notice with an additional fine of ₹10 lakh even when the appellant said that a penalty was paid to the stock exchanges earlier for the discrepancies and the same were corrected.

SEBI moves SC against SAT’s aggressive remarks

Still, SEBI went ahead and imposed a penalty on the grounds that the appellant, Shriram Insight Share Brokers, had not acted with skill, care and diligence. SAT said SEBI had ‘skirted’ the issue and put it under the carpet even when the appellant said that it had already corrected the discrepancies and paid a penalty. Most importantly, SAT quashed the SEBI order against the broker ‘with cost’ to the regulator. This is the third instance where SAT has come down heavily on SEBI in less than a month.

Even though the SEBI Act gives the regulator all its powers, it does not prescribe any limitation period for issuing show cause notice (SCN). SAT has been relying on several Supreme Court judgments to make its point that SEBI should not raise old and stale disputes. Just last month, SAT had hauled up SEBI for a 12-year delay in SCN, even ordered the AO to file a sworn affidavit before the bench. When the AO did not do it, the SAT judge issued a summons and asked the officer to appear in person. As a face-saver, SEBI moved the SC seeking its intervention in ordering SAT to quash the adverse remarks and the summons.

SAT relied on SC judgements

In the instant case, an inspection was conducted by SEBI against Shriram Insight Share Brokers in January, February 2012 and the report was submitted in May the same year. The broker gave its reply in June the same year and thereafter nothing was done but SCN was eventually issued in December 2019. The broker told SEBI that there was an inordinate delay in the issuance of the SCN and, in any case, the deficiencies pointed out in the inspection was duly complied with and the deficiencies has been removed. Further, the stock exchange had also imposed a penalty on some of the irregularities, which has been duly paid.

SAT penalises SEBI for ‘abusing court process’

“In our view, the view taken by the AO is patently erroneous and cannot be allowed to stand. We are of the view that when a defence is raised by the appellant it is the onerous duty of the AO, as a quasi judicial authority, to deal with the matter instead of skirting the issue and pushing it under the carpet without dealing with it. The ground raised and not dealt with amounts to judicial indiscipline. We are of the view that, when a question of delay has been raised, it is imperative for the AO to deal with the issue,” SAT judges said in the order.

SAT has relied on SC judgements which said that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created, etc. A few months ago, brokers association ANMI had written to the government for bringing SEBI under the ‘limitation act’ that will restrain the regulator from rekindling old cases against them.

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