Securities and Exchange Board of India (SEBI) has done a U-Turn before the Bombay High Court and agreed to share its inquiry report with debenture trustees in the debt issuance related fee cartelisation case. 

The inquiry followed an order of the Bombay High Court whereby SEBI, being the sectoral regulator, was allowed to examine the allegations of a leading non-banking finance company against Debenture Trustees for suspected cartelisation on fees, in the first instance. SEBI inquired the matter and submitted its inquiry report to Competition Commission of India (CCI) claiming confidentiality being a regulator-to regulator communication. This was objected by the counsel representing Debenture Trustees and they sought a copy of the SEBI inquiry report. 

The Bombay High Court is hearing a plea filed by Debenture Trustees against CCI probe for alleged cartelisation in charging high fees for issuing debt, citing lack of jurisdiction. 

Earlier, SEBI had filed an affidavit before the Bombay High Court acknowledging the jurisdiction of CCI in investigating the collusive conduct of debenture trustees in charging high fees for issuing debt and due diligence. Based on SEBI’s stand, CCI moved an application for vacation of stay on its probe and argued that the interim stay granted by the High Court on the CCI probe, was to allow SEBI to arrive at its prima facie view in the matter. As SEBI has submitted its report, CCI argued that there was no occasion to continue the stay and urged the court to vacate the same. The matter has now been listed for hearing on December 16. 

SEBI under fire before Supreme Court

SEBI has recently come under the spotlight of Supreme Court for adopting a cherry-picking approach in supplying documents to the regulated entities. On August 5, the SC had allowed an appeal by Reliance Industries Ltd (RIL)seeking access to and inspection of documents in relation to a proceeding against RIL and its promoters. Allowing the plea, SC directed SEBI to provide the documents to RIL and observed that ‘…the approach of SEBI, in failing to disclose the documents also raises concerns of transparency and fair trial….’ and added that ‘SEBI is a regulator and has a duty to act fairly, while conducting proceedings or initiating any action against the parties’. SEBI, however, did not comply with the order and accordingly, RIL initiated contempt proceedings against SEBI for non-compliance of the SC order dated August 5. During hearing on the contempt notice, SEBI submitted before the SC that documents in questions had now been supplied to RIL and stated that documents were earlier not supplied as review petition against August 5 order was pending before the Supreme Court.  In light of this, the Supreme Court closed the contempt proceedings on December 2.  

Cartelisation by Debenture Trustees

CCI earlier this year ordered a probe against debenture trustees and their association for suspected cartelisation on fees. SEBI regulations mandate that companies raising debt appoint a ‘debenture trustee’ to protect the interests of investors. The trustees charge a fee from the companies issuing the debt and make due-diligence checks on them. A leading non-banking finance company from South India had complained to both SEBI and CCI, alleging that leading debenture trustees were cartelising the debenture issuance market and charging exorbitant fees.

Turf war

The debenture trustees challenged CCI’s order, initiating an investigation by moving the Bombay High Court and seeking a stay on the CCI proceedings on the ground that SEBI was the sectoral regulator and hence it had sole jurisdiction to act against them. The Bombay High Court asked CCI not to take any coercive action against debenture trustees and their association till SEBI concludes its enquiry.

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