The Madras High Court has asked market regulator Securities and Exchange Board of India (SEBI), Ministry of Corporate Affairs and Ministry of Law and Justice to respond in three weeks on the power delegated to SEBI to increase its investigative and enforcement powers,and the way promulgation of ordinance.
The Court's direction came in response to a Public Interest Litigation (PIL) filed by Prashaanth Balasubramaniam, a Chennai-based advocate.
According to the Petition, copy of which is available with Business Standard, challenged the Ordinance issued by the President of India amending the Securities and Exchange Board of India (SEBI) Act, to increase its investigative and enforcement powers, and the way promulgation of ordinances are being held. The Court has asked the Government and SEBI to respond on the petition in two weeks.
The Ordinance under challenge has various insertions and amendments to strengthen the investigative and enforcement powers, including calling for information and records from any person including any bank or any other authority or board under the central or State Act, which shall be relevant to any investigation or inquiry by the SEBI and suggesting establishment of as many Special Courts as may be necessary to provide speedy trial of offences under the Act.
Contenting the Ordinance, Balasubramaniam in his petition said "it is clear that this Ordinance is unconstitutional and has been passed without due application of mind and in utter violation of constitutional principles."
The petition was also filed to look into the powers to repromulgate an ordinance by the President of India under Article 123 of the Constitution of India, the arbitrary manner by which the impugned ordinance is sought to be enforced and the need to quash the impugned repromulgation of ordinance, said the petitioner.
The petitioner argues that the as per the law, in the case of a promulgation of an ordinance, the President shall do so only if he finds "necessary circumstances are in existence" and that "immediate action is of the necessity" in such a case and these conditions does not exist in the Ordinance related to the Securities Laws (Amendment) Ordinance, 2014.
It also said that the said ordinance had earlier been promulgated on July 18, 2013, was introduced in the Lok Sabha with changes on August 12, 2013 and went to a Select Committee and not passed by the Lok Sabha. It was reintroduced as an ordinance from September 16, 2013, to January 16, 2014, when it lapsed and was reintroduced as a ordinance on March 28, 2014, with retrospective effect from July 18, 2013.
It added that the nature of powers given to SEBI through the Ordinance are wide, far reaching and require intense deliberation and legislative reasoning. It has empowered SEBI to search any building, vessel, aircraft or break open the lock of any door, safe, and the petitioner says that "the fact that these powers are extended to any aircraft or vessel, not necessarily limited to Indian vessels would mean that foreign vessels are open to being searched. This is not only a violation of the sovereignty of nations but is also prima facie beyond the mandate of the legislature".
"The drafting of the Ordinance does not give a definite time frame for its operation and only states that it is enacted to continue the effect created by the ordinance.
This is in clear violation of the intent behind the addition of ordinance making power in the Constitution," it added.
It also says that "even though the President is supposed to have total discretion to accept ordinances, it is the Cabinet which involves the real power and in order to change its policies or in an attempt be active in the law making front use the ordinance making power as a method to solve long term problems".
"It is our case that ordinance making power itself is severely flawed and used for ulterior motives. Thus, in the case of an ordinance being repromulgated, this is an instance of a temporary stop gap measure which is clearly inadequate and often made for short sighted reasons being given the status of a law," it added.
"The Second Ordinance, in fact gives greater power to the SEBI with regard to check illicit investment schemes and other market manipulations. This is yet another instance of the Government treating ordinances as long standing measures which are intended to act as law, rather than as a temporary. This is a clear fraud on the Constitution and is an ingenous method to bypass legislation," it added.
In addition to this, if such ordinances are allowed to subsist or exist, the extraordinary powers given with regard to an ordinance will be whittled down to a normal legislative alternative, it said. The petitioner has prayed the Court to declare the Securities Laws (Amendment) Ordinance dated March 28, 2014, issued by the Union Ministry of Law and Justice, "an unconstitutional"