The Securities & Exchange Board of India (Sebi) has moved the Supreme Court, seeking adjudication on the issue whether the Securities Appellate Tribunal (SAT) can exercise the power vested in the market regulator.
The tribunal has set a wrong precedent by arrogating to itself the power vested in it, said Sebi. The tribunal had directed the Bombay Stock Exchange (BSE) to grant in-principle approval to the issue, allotment and listing of shares issued by a market participant to its promoters on a preferential basis. It was, however, rejected by BSE.
Sebi said instead of giving direction to BSE for such in-principle approval, the tribunal should have referred the case to the market regulator. “Whether SAT being an appellate tribunal, can exercise the powers conferred upon the appellate board under the Sebi act/rules/regulations/guidelines,” asked Sebi in its appeal filed through counsel Pratap Venugopal.
It said, “SAT has grossly erred in concluding that it could issue the same direction and exercise the same powers as the appellant board (Sebi).” “It is submitted that the powers of SAT are not a superset of the powers of the original authority.
While the appellant, under the provisions of sections 11-11 D of the Securities and Exchange Board of India Act, 1992, exercises functions such as registration and regulation of intermediaries, inspection, investigation, levy of fees, making of regulations etc, it cannot be said that powers exercisable by the appellant board are also vested in the SAT,” said Sebi.
The tribunal, on August 7, 2009, had passed its order on the plea of a company, S Kumars Nationwide, engaged in the business of buying selling, manufacturing and marketing of textile products. Its shares were listed on BSE. During the course of its business, the company raised loans to the tune of around Rs 850 crore from various banks and financial institutions. Since it was unable to repay such loans, one of the lender filed an application with the Corporate Debt Restructuring Cell (CDR) as per the framework specified by the Reserve Bank of India for restructuring the debts of the borrower.
The CDR approved the proposed restructuring package submitted by the lender bank. In the compliance with the conditions of the CDR package, the promoters pledged the equity shares held by them with the bank. S Kumar Enterprises (Synfabs), one of the promoters of the company, subscribed to the shares of the company valuing Rs 15 crore by way of preferential issue in order to comply with the conditions pertaining to promoters bringing in Rs 230 crore. These shares on preferential basis were allotted.
Similarly, some other promoters were allotted shares on preferential basis for an amount of Rs 5 crore to comply with the conditions of CDR package. The shares held by the promoters of the company were pledged with the lenders. Having decided to allot shares to some of the promoters on the preferential basis, the company filed application before BSE seeking in- principle approval for the issue, allotment and listing of those shares.
It was declined. On an appeal filed by the company, the tribunal had asked BSE to grant such approval by exercising the powers under the provisions of Sebi (Disclosure and Investor Protection) Guidelines, 2000 (now replaced by Sebi (Issue of Capital and Disclosure Requirements, 2009 or ICDR Regulations ) read with Sebi Act, 1992.