A fascinating discourse is afoot before the Supreme Court on the powers of the Securities Appellate Tribunal, prompted by two recent orders issued in quick succession of each other. A spate of recent decisions by the SAT to revoke penalties imposed by SEBI, and replace it with a warning, has raised the legal question of whether the tribunal indeed has been vested with such powers of remission under the SEBI Act and if it is empowered to commute monetary sanctions down to just a judicial reprimand.
The first, an interim order of the Supreme Court issued on Jan. 5, 2021, in the matter of SEBI vs. Bharti Goyal, prima facie observes that substituting a monetary penalty issued by SEBI with a warning is beyond the scope of SAT’s powers. This was followed by an order issued by another three-judge bench the very next day, in an appeal by SEBI challenging SAT’s decision to overturn a monetary fine levied for delayed disclosures by the National Highway Authority of India, and replace it with a warning. In a compactly worded disposal, the apex court declined to interfere with the tribunal’s decision to impose such a warning on NHAI, given the “peculiar facts and circumstances” of the case. Interestingly, this hypothesis regarding NHAI’s sui-generis nature recurred across the impugned SAT order as well, which stated that its decision to write down the penalty to a warning “should not be treated as a precedent”.
As creatures of statute, tribunals and their powers have often been the subject of judicial challenge due to efforts to demarcate their operational perimeter, the causes of action—and actors—over which they assume jurisdiction, and most critically the components of the toolkit statutorily available to them while reviewing orders issued by forums of first instance. In the specific context of the Securities Appellate Tribunal as well, similar questions have been raised on occasion. Set up under Section 15K of the SEBI Act, the SAT is empowered to exercise all powers and authority as vested in it under both the SEBI Act as well as the Securities Appellate Tribunal (Procedure) Rules, 2000 which bestow the tribunal with the ability to uphold, set aside or modify orders of SEBI and in certain cases (per Rule 21), “make such orders or give such directions as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice.” Such powers are not entirely uncommon and the NCLAT, for instance, has similar worded “inherent powers” stitched into its rules too.
But in certain cases, tribunals may exercise powers that are not explicitly enshrined in law, as long as such powers are incidental, consistent, and not prohibited under their legislation. Such headroom allows tribunals to make decisions that do justice to the interests of all parties, without being unduly fettered by the strict letter of the law and thereby modulate reliefs according to the facts, even where such measures are not itemised in their roster of powers.
Specifically in the context of SEBI and SAT, the Supreme Court has long guided our understanding of the trifecta of regulatory powers, i.e., quasi-executive, quasi-legislative, and quasi-judicial powers within SEBI and how they co-exist. In doing so, the apex court has recognised that SAT’s powers are in fact co-extensive with SEBI’s cluster of penal powers. In other words, despite the broadly worded Rule 21 of the SAT Rules, which equips the tribunal with residual powers, SAT cannot impose a penalty that SEBI itself cannot impose vis-a-vis the specific violation under inquiry. That said, across the different kinds of proceedings that SEBI is empowered to initiate as a quasi-judicial authority, its powers to issue warnings are not consistently recognised across its framework, barring certain regulations such as those governing fraud and unfair trade practice laws.
This is why the ongoing Bharti Goyal matter pending before the three-judge bench of the Supreme Court resurrects a very relevant debate for practitioners and indeed, the market at large. Since the matter itself is sub-judice, it is premature to comment on the form that these arguments will eventually assume. We should definitely expect to see a reasoned decision on the scope of SAT’s discretion and its interplay with the tribunal’s overall ability to take necessary action where the circumstances necessitate invoking rules of equity. An apposite and well-timed illustration of such an effort to do justice is, in fact, SAT’s decision to issue a warning to the NHAI, as now upheld by the Supreme Court, which should be given due consideration as well.
How tribunals calibrate culpability and then decide the appropriate penalty may, at first blush, seem to be somewhat of a pedantic enterprise. But the practical implications of any decision will have a far-reaching impact on the judicial remedies available to a whole host of litigants before SAT, which is also the designated appellate forum for entities regulated by IRDA, PFRDA as well as orders issued by depositories and stock exchanges. Where there is sufficient legal basis to petition to the tribunal’s sense of proportionality, commutation of a monetary penalty is always a tenable judicial remedy to seek, especially since a warning does not always impact imperatives such as fit and proper declarations and also takes the bite out of stock exchange announcements or financial/contractually mandated disclosures.
Nonetheless, there are a whole host of competing considerations at play too. One, of course, is the implication of equating a judicial warning, reprimand, or censure to a ‘penal action’ or ‘penalty’ under law. Second and most importantly, is the perceived quandary in interpreting the SAT’s powers so widely, that it resonates with various different tribunals and is appropriated into their judicial behaviour as well.
Shruti Rajan is a Partner in the Mumbai office of Trilegal, and a regulatory and enforcement lawyer in the financial services space.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.