Sebi's issuance of consent orders challenged in HC

The Delhi High Court today sought response from the Securities and Exchange Board of India (Sebi) on a plea that challenged the regulator's 2007 circular enabling Adjudicating Officers (AO) to issue consent orders without fixing guilt of parties involved.

The plea also sought quashing of the circular and cancelling of all consent orders passed by the Sebi or by the AOs in pursuance of the circular.

The circular enables AOs to settle "administrative or civil actions" in cases where a person is prima facie found to have violated rules without fixing the guilt of parties involved.

The petition by a businessman, Deepak Khosla, alleged the impugned circular of Sebi enabled AOs to pass consent orders which deny "important information" to investors pertaining to the offences detected by the regulator.

It said an adjudicating order promotes dissemination of information among the investors as it exposes the violators, their modus operandi and other important aspects, whereas consent orders lead to denial of such important information.

"A consent order doesn't indicate the investors whether or not intermediaries and other persons they deal with in the securities market are violators," Khosla said.

Challenging the constitutional validity of the circular, the petition said that not only it allows the Sebi to pass an order for compounding offences under the Sebi Rules and Regulations but also prohibits filing of an appeal against such consent orders.

The petition further said there is no power with Sebi to frame such a 'Super Amnesty' scheme, especially since the scheme is completely contrary to the Sebi Rules and Regulations ACT.

A bench of acting Chief Justice AK Sikri and Justice Rajiv Sahai Endlaw issued a notice to Sebi and asked it to file its response within four weeks and listed it for hearing on January 31, next year.