In an important ruling, the Supreme Court (SC) On Thursday held that the Securities and Appellate Tribunal (SAT), a quasi judicial authority that presides over capital market-related cases, has no powers to modify the penalty imposed on stock brokers by the Securities and Exchange Board of India (Sebi).
Hearing an old case filed by Sebi challenging the power of SAT to modify the nature of penalty imposed by it on stock brokers who violated the Sebi Act 1992, Justice Arijit Pasayat delivered the ruling.
While disposing of the case, the apex court made it clear that Sebi can suspend the licence of a broker for minor violation of rules and cancel it altogether in case of major violations, and the tribunal cannot alter the market regulator’s decision.
There have been instances where aggrieved parties have moved SAT against the Sebi decision and the tribunal has let them off after imposing monetary penalties. This is despite the fact that the Sebi Act does not provide any such power to the tribunal.
In the matter of Sebi versus Saikala Associates, on which the apex court ruling came, SAT had changed the penalties imposed by the market regulator on various erring sub-brokers and let them off. Sebi then moved the apex court against the tribunal’s decision.
SAT had converted the penalty of suspension of certificate of registration issued by Sebi to sub-brokers Saikala Associates and Shipla Stock Brokers Pvt Ltd to monetary penalty of Rs 300,000 and Rs 100,000 respectively. However, Sebi’s contention was that SAT had imposed monetary penalty, which it was not empowered to do.
“The impugned order of SAT converting the penalty of suspension of certificate of registration as imposed by Sebi into monetary penalty is without jurisdiction and unauthorised by the Act and creates serious consequences and affects the interest of the investors in the securities market,” Sebi had said in its petition.
In this case, the position of broker/sub-broker in case of violation is statutorily provided under Section 12 of the Sebi Act, which has to be read along with Rule 3, the apex court observed. No power was conferred on SAT to travel beyond the areas covered by Section 12, Rule 3. When something has to be done statutorily in a particular way, it can only be done that way. There was no scope for taking shelter under a discretionary power, the court said
The apex court order can have a bearing on some of the major cases against Sebi pending before SAT. These cases include the appeal filed by high profile stock broker Shankar Sharma, who has been banned by Sebi from trading for at least one year for using fictitious trading accounts during the 2001 stock market scam. Besides, there are many other cases relating to price manipulation that are awaiting SAT verdict.
Kedar Dige, partner of law firm VKD Associates, says this is a landmark ruling and repercussions of this will be felt on many other cases pending before SAT. “I’m yet to see the original order... However, from whatever I have read on the Internet, this order has cut SAT’s power substantially and rendered it toothless,” said Dige.
Earlier, Sebi had no power to settle cases, but the Sebi Act was amended in 2002 to allow it to impose penalties going up to three times of the illegal profits made by errant parties.
