• Apr
  • 07
  • 2010

Investor Protection & role of the Securities Appellate Tribunal

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Saibal C. Pal

1.  Introduction

Need for having separate laws meant for the securities market surfaced in the late eighties which became a reality in  early nineties. Orderly development and protection of investors became the objective of the Government without which the capital market would not develop. In the later part of  1991,  Department of the Controller of Capital Issues was abolished and in the first quarter of 1992 on 30.01.992 an ordinance enacting the Securities and Exchange Board of India Act, 1992 was  passed.  The Securities and Exchange Board of India (`SEBI’) which was already in existence received statutory powers through the encactment.

SEBI Act has since transformed the securities market into one which can be compared with the advanced countries.  To redress grievances relating to the securities market, SEBI Act  framed regulations and  pursuant to S 15K of the Act, SEBI established the Securities Appellate Tribunal,formerly SEBI Appellate Tribunal and the word `SEBI’ was substituted by the word `Securities’ in 1995.  Since 1995, all cases concerning securities laws which were to be appealed against came to be dealt by SAT only. To-day the securities laws constitute the Securities Contracts (Regulation) Act, 1956 (`SCRA’), the Securities and Exchange Board of India Act, 1992 (‘SEBI ACT’) and the Depositories Act, 1996 (`DA’). SEBI regulates the securities market and SAT acts as a watchdog to ensure justice. SEBI was set up in line with the constitution and operation of the Securities Exchange Commission (SEC) of USA. Pursuant to S 29 and 15K, 15T and 15 U of the Act, SEBI constituted the Securities Appellate Tribunal (`SAT’).  The rules were repealed and the Securities Appellate Tribunal (Procedure) Rules, 2000 (`RULES’) were notified vide GSR No. 142 (E) dated 18.02.2000. To regulate the working of SAT for dealing with matters with the SEBI Act, the Depositories Act and the Securities Contract Act, the SEBI Appellate Tribunal (Procedure) Rules, 2000 ,  the Depositories (Appeal to Securities Appellate Tribunal) Rules, 2000 and the Securities Contracts(Regulation)(Appeal to Securities Appellate Tribunal) Rules, 2000 were announced to come into effect from 18.2.2000.

2. Tribunal, SAT and Civil Procedure Code

Article 227 of the Constitution of India defines  ‘tribunal as a person or a body other than a Court set up by the State for deciding rights of contending parties in accordance with rules framed for regulation having force of law. (Haripada Dutta v Ananta Mandal, AIR 1952 Cal 526,528).  According to Webster’s International Dictionary it is a Court or forum of justice; a person or body of persons having authority to hear and decide disputes to bind disputants.  Tribunal, distinguished from a court, exercises judicial power and decides matters judicially or quasi-judicially. It does not constitute a court in technical sense. (Engineering Mazdoor Sabha v. Hind Cycles Ltd.,AIR 1963 SC 874,878) [Consitution of India Art.136(1)].

Expression ‘civil court’ includes all courts of civil judicature whose procedure is governed by the Code of Civil Procedure (‘CPC’) and includes Revenue Courts in the State. (Mokshagundam Narasaiah v Estates Abolition Tribunal, AIR 1957 AP 903,907). Courts which decide disputed rights between subjects or between a subject and the State would be matter to be decided by civil courts as opposed to criminal courts where the state indicates wrongs committed against the public. While special courts have jurisdiction over a limited class of suits specified in the statute, jurisdiction of the civil courts is not limited to any class of suits. (Kalavagunta Sriramarao v. Kalavagunta Suryanarayana Murthi, AIR 1954 Md 340,344,345.) . S 15 Y of the SEBI Act provides that no civil court shall have jurisdiction to entertain a suit or proceeding in respect of any matter in which an adjudicating officer (`AO’) is appointed under the Act or SAT is empowered by or under the Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act. S 15Z states that any order of SAT can be appealed before the Supreme Court within a period of 60 days. However, as per S 15 T (2) of the SEBI Act provides that after the commencement of the Securities Laws (Second Amendment) Act, 1999, no appeal shall lie on orders passed by an adjudicating officer with the consent of the parties.

As per S 15 T (3) appeal is to be filed before SAT within 45 days from the receipt of the  copy of the order of  SEBI or AO accompanied by the prescribed fees.  45 days period time limit may be extended if the Tribunal is satisfied that there was sufficient cause for not filing the appeal within the time limit. SAT shall send copy of the order to SEBI, parties to the appeal and concerned Adjudicating Officer. All appeals filed before SAT is to be disposed of within 6 months of the filing the appeal.

S 15 U of the Act provides that SAT shall not be regulated by the procedure of the Code of Civil Procedure, 1908 (‘CPC’). SAT is guided on the principles of natural justice subject to other provisions of the Act and rules. SAT has the power to frame their own procedure and fix places of hearing. As regards discharge of functions, SAT has the same powers as vested in a civil court under the CPC for:

a)    summoning and enforcing attendance of any person and examining him on oath; b)    requiring  discovery and production of documents; c)    receiving evidence on affidavits; d)   issuing commissions for  examination of witnesses or documents; e)  reviewing its decisions; f)  dismissing an application for default or deciding it ex-parte; g)  setting aside any order of dismissal of any application for default or any order passed by it ex-parte; and h)  any other matter which may be prescribed.

Though no civil court has any jurisdiction to try any suit pertaining to securities laws, the procedure in trying any matter which comes up for adjudication will follow the procedure followed under CPC. Each proceeding shall be deemed to be  judicial proceeding within the meaning of Ss 193  (Cognizance of offences by Courts of Session)  and 228 (Framing of Charge), S 196 (Prosecution for Offences against the State and for criminal conspiracy to commit such offence)  of the IPC and  S 195 ( Prosecution for contempt of lawful authority of public servants for offence against public justice and for offences relating to documents given in evidence.) and Chapter XXVI (Provision as to offences affecting the Administration of Justice) of the Code of Criminal Procedure,1973. S 26 of the SEBI Act states that Courts shall not take cognizance of any offence punishable under the Act or rules save on a complaint by SEBI. No court inferior to that of a Court of Sessions shall try offence punishable under the Act. Appearance before SAT may be either in person or through authorized person being a Chartered Accountant, Company Secretary, Cost Accountant or Legal Practitioner.

3.  Limitation

S 15W of the SEBI Act provides that the Limitation Act, 1963 shall apply in respect of appeals filed before SAT.  S 20 states about appeals filed after expiry of 45 days. Such appeals will be admitted, if the appellant satisfies the Central Government that there was sufficient cause for not preferring the appeal within the prescribed period. Appeals shall be in the prescribed form with a copy of the order appealed against along with prescribed fees. Appellant shall be given reasonable opportunity of being heard on the appeal filed before an order is passed.

4. Penalties that may be imposed by SEBI for acts and omissions under the Chapter are:

1.  S 15A – Penalty for failure to furnish information, return etc., 2.  S  15B –  Penalty for failure by any person to enter into agreement with clients; 3.  S  15 C- Penalty for failure to redress investors’ grievances ; 4.  S  15 D – Penalty for certain defaults in case of mutual funds; 5. S 15 E – Penalty for failure to observe rules and regulations by an asset management company; 6. S  15 F-  Penalty for failure in case of stock brokers; 7.  S  15 G – Penalty for insider trading; 8.  S 15 H – Penalty for non-disclosure of share and takeovers; 9.  S 15 HA –  Penalty for fraudulent and unfair trade practices; 10. S 15 J – Factors to be taken into account by the adjudicating officer; 11. S 15 JA. – Crediting sums realized by way of penalties to Consolidated Fund of India.

SEBI shall appoint an AO for holding inquiry who shall not be below the rank of Division Chief. Reasonable opportunity of being heard shall be given before imposition of penalty.

5. The Depositories (Appeal to Securities Appellate Tribunal) Rules, 2000

The rules were notified vide GSR 143(E) dated 18/2/2000. Violation under the Depositories Act, 1996 is adjudicated by an AO not below the rank of Divisional Chief of SEBI to determine :

i)    Penalty for failure to furnish information return etc.( S 19A).ii)   Penalty for failure to enter into an agreement.  ( S 19B).iii)  Penalty for failure to redress Investors grievances. (S 19C). iv) Penalty for delay in dematerialization or issue of certificate of securities. (S 19D).v)   Penalty for failure to reconcile records.( S 19E).vi)   Penalty for failure with directions issued by Board u/s 19 of the Act.( S 19F).vii)  Penalty for contravention where no separate penalty has been provided. (S 19G). S 19 I states while adjudging the amount of penalty u/s 19H , the AO shall consider the following factors:

a)    amount of disproportionate gain or unfair advantage whenever quantifiable, made as a result of the default; and

b)   the amount of loss caused to an investor or group of as a result of the default.

S 19 J states that sums realized under the Act by way of penalties shall be credited to Consolidated Fund of India.

6.  The Securities Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules,2000.

The rules were framed to deal with appeals arising out of decisions taken by SEs particularly when a SE acting as per the power given to it by its bye-laws, refuses to list securities, the aggrieved company is entitled to  file an appeal before SAT stating the reasons for such refusal and may:

(a)    within 15 days from the date on which the reasons for such refusal are furnished to it, or

(b)    where the SE  omitted or failed to dispose of, within the time specified in ssc (1A) of section (1A) of S 73 of the Companies Act,1956 the application for permission for the shares or debentures to be dealt with on the SE, within 15 days from the date of expiry of the specified time or within such further period not exceeding 1 month as SAT may on sufficient cause being shown, allow appeal to SAT having jurisdiction in the matter against such refusal, omission or failure as the case may be.

Appeal can be filed within 45 days from the date of the order in respect of any security/units or other instruments of a `collective instrument scheme’ defined under the SEBI Act.

7. The Companies Act, 1956 and SEBI Act, 1992

The Companies (Amendment) Act, 2000 amended the Companies Act, 1956 with effect from 13.12.2000. By the amendment, S 2(23A) was inserted in the Companies Act and the definition of `listed public companies’ was inserted to mean any public company which has any of its securities listed in any recognized stock exchange. Simultaneous with the definition of listed public company, S 55A was inserted giving powers to SEBI under ss 55 to 58, 59 to 81(including ss 68A, 77A and 80A),108,109,110,112,113,116,117,118,119,120,121,122,206,206A and 207 so far as they relate to issue and transfer of securities and non-payment of dividend shall – (a) in case of listed public companies;(b)in case of those public companies which intend to get their securities listed on any recognized stock exchange in India, be administered by the SEBI; and (c) in any other case, be administered by the  Central Government. Explanation to the section states that all powers relating to all other matters including the matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of redeemable preference shares shall be exercised by the Central Government or the Registrar of Companies, as the case may be.

Persons aggrieved by orders passed by SEBI in respect of the above provisions of the Companies Act have to appeal before SAT.  SAT does not have any jurisdiction over unlisted companies.

8. Measures and impact

Regulations for the securities market under the control of SEBI is in place for the last 18 years. SAT has been established for the last 15 years. The two have done much to smoothen the securities market for investors in the country. SAT order can be appealed only  before the Supreme Court (S 15 Z). Of the several orders passed over the time, the order in the appeal Mega Resources Ltd., vs. SEBI (Appeal no.49 of 2001) SAT held that notice served by `under certificate of posting’ was not good service. However, u/s 54(2)(a) of the Companies Act,1956 service of documents under `certificate of posting ‘ is considered valid notice. The difference in view has not been settled as yet.

9. Conclusion

MCA, SEBI and SAT are all working for the emergence of a transparent capital market to investors.  Through investor education, adoption of measures by the Government investor base is set to increase. To-day household savings have increased manifold and if the savings can be channelized to the capital market, industrial base of the country will broaden finally signaling industrial progress.

Email: saibal2004@rediffmail.com


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