What Type Of SEBI Orders Are Appealable? Supreme Court Decides

The Supreme Court has laid to rest
a controversial and important issue. That is on the issue as to what orders
passed by the Securities and Exchange Board of India securities laws are
appealable. SEBI has both general and specific powers. SEBI passes orders on
several issues. SEBI also issues circulars, directions, etc. which have
significant impact on persons connected with market operations. Since it is an
expert body dealing with a field which is complex, courts give a lot of freedom
to SEBI. If one reads the powers of SEBI, SEBI has almost been given a carte
blanche on how it can deal with the operation of the securities markets.

SEBI has powers
:

–   to make rules and regulations, that too,
except for some administrative and parliament overseeing, are largely
self-determined.

–   to give directions to stock exchanges, listed
entities, intermediaries, etc.

–   to punish and levy penalties,

–   to disgorge wrongfully made profits,

–   to make parties buy shares or sell shares etc
and

–   to debar entities to approach the financial
markets for a specified period.

The question before the Supreme
Court was : whether all orders passed by SEBI are appealable or are there any
exceptions – that is – some orders are not appealable?

The right to appeal is important.
The first appeal is to the Securities Appellate Tribunal (“SAT”). SAT has a
great record of disposing appeals fast with not many of its rulings being
overturned by the Supreme Court (the next appellate body). SAT is an expert
body well versed with the functioning of the securities market and hence
aggrieved parties can expect a quick relief from an authority which has an
indepth grasp of finer issues of this complex field. The Supreme Court in the
case of Clariant (Clariant International Limited vs. SEBI (2004) 54 SCL 519
(SC)) has observed, “The Board is indisputably an expert body. But when it
exercises its quasi-judicial functions, its decisions are subject to appeal. The
Appellate Tribunal is also an expert Tribunal.” (emphasis supplied).

In the past, appeals have been
liberally admitted. Even letters of SEBI, if they affected rights of a party,
have been held to be appealable. However, when a Chartered Accountant appealed
to SAT on the ground that SEBI should not have referred his name to ICAI, it
was rejected since it was merely a reference.

However it was felt that clarity
was lacking as to what orders were appealable as the same was not clearly
defined. Another issue which required clarification was: whether circulars
which affected a group of parties adversely were appealable. The decision in
the case of NSDL vs. SEBI ((2017) 79 taxmann.com 247 (SC) deals with
such issues.

Facts of the case

The
facts of the case are fairly simple. SEBI had issued a circular to depositories
directing them to restrict their charges in the manner and to the extent
prescribed in the circular. Obviously, the depositories were aggrieved as the
circular directly affected their finances. NSDL, a depository, appealed against
the circular/direction to SAT. Preliminary issue raised before SAT was whether
such a circular/direction is appealable. SAT on merits, rejected the appeal and
held the circular/directions to be valid. In other words, circulars /
directions issued by SEBI were appealable. Both parties appealed against the
order of SAT to the Supreme Court. SEBI appealed against the part where SAT had
held that such a circular/direction was appealable. The depositories appealed
against the part where on merits its appeal was rejected.

The Supreme Court decided to deal
first with the part of the SAT order where it was held that such a circular was
appealable. Obviously, if the Court found that such a circular was not
appealable, then the part relating to merits would not require consideration.

Analysis of orders passed by SEBI
into categories

To decide whether the circular
issued by SEBI was appealable or not, the Supreme Court divided various types
of circulars, orders, directions, etc. that SEBI was empowered to issue into
three categories:-

1. Orders that are in
exercise of administrative functions

2. Orders that are in
exercise of its legislative functions

3. Orders that are in
exercise of its quasi-judicial functions.

The Supreme Court held that it was
only the third category, i.e. orders that are issued in exercise of its quasi-judicial
functions, were the ones that were appealable.

The Court then, firstly, gave
reasons why it held that only such category or orders were appealable.
Secondly, it explained meticulously how to determine whether an order falls
under which category. The decision even pointed out the provisions in the SEBI
Act that dealt with powers relating to each category of functions. On facts, it
held that the circular was issued in exercise of administrative functions and
hence it was not appealable. 

Why are only orders issued by
SEBI in exercise of quasi-judicial functions appealable under the SEBI Act?

The Court meticulously analysed
the provisions of the Act to show that the Act provided and intended to allow
appeal only against quasi-judicial orders.

Firstly, it highlighted the
constitution of SAT. It noted that the Presiding Officer has to be a retired
judge. That showed that only quasi-judicial orders were intended to be
appealable.

Secondly, it noted that in case of
appeals against orders passed by an adjudication order, appeal could be made by
an aggrieved party within 45 days of the day when such order is “received by
him”. The Court observed that “Generally administrative orders and legislative
regulations made by the Board are never received personally by ‘the person
aggrieved’”. Hence, once again, it was only quasi-judicial orders that were
intended to be appealed.

The Court then observed that, as
held in its earlier decision in Clariant’s case that the powers of SAT were
co-extensive with that of SEBI while reviewing in appeal SEBI’s orders. Hence,
once again, such orders can only be quasi-judicial in nature.

Even the procedure relating to
appeal pointed towards this. The order passed by SAT on appeal had to be sent
to the parties to the appeal (i.e. the aggrieved party) and the adjudicating
officer. Once again, this shows, the Court held, that the scheme of the Act was
to allow appeal only against quasi judicial orders.

The fact that appeals against
orders of SAT to the Supreme Court are allowed only on questions of law was
held to be yet another pointer in this direction.

Hence, the Court concluded that :

1.  appeals are allowable only
against quasi-judicial orders of SEBI. Appeals against orders in exercise of
legislative functions is obviously beyond the appellate function of SAT which
itself is a creature of the Act.

2.  Orders in exercise of
administrative functions too cannot be appealed against before SAT but petition
for judicial review may be filed in Court.

How to determine whether an
order is in exercise of administrative/legislative/quasi-judicial functions?

The above analysis brings us to
the important point of how to determine whether a particular order is in
exercise of quasi-judicial functions and thus appealable or whether it is in
exercise of administrative or legislative functions and hence not appealable.
Here again, the Court meticulously analysed the issue on first principles.

It cited the classic case of The
King vs. Electricity Commissioners [(1924) 1 KB 171] where Lord Justice
Atkin defined a quasi-judicial order as:-

“Whenever
any body of persons having legal authority to determine questions affecting
rights of subjects, and having the duty to act judicially, act in excess of
their legal authority, they are subject to the controlling jurisdiction of the
King’s Bench Division exercised in these writs.”

The
Court further observed that the above decision was applied in another decision,
and the following guidelines were given to decide whether an order of an
administrative body is a quasi-judicial one:-

“(i) There must be legal
authority; ?

(ii) This authority must
be to determine questions affecting the rights of subjects; and

(iii) There must be a
duty to act judicially.”

The Court further qualified and
explained the principle that a mere absence of a lis between the parties
does not make the order one that is not quasi-judicial. So long as the
aforesaid 3 conditions are satisfied, the order is a quasi judicial one. It
observed, “..the absence of a lis between the parties would not
necessarily lead to the conclusion that the power conferred on an
administrative body would not be quasi-judicial – so long as the aforesaid
three tests are followed, the power is quasi-judicial.”

What also matters is the nature of
the final order. Thus, if the order does not determine the rights of parties
and, for example, makes a report after giving the parties a hearing, the order
is not a quasi-judicial one.

What are the specific
provisions in the SEBI Act, orders under which can be appealed against?

To make its order even more
comprehensive and thus be helpful to be applied in specific provisions without
ambiguity, the Court then listed the various provisions of the SEBI Act under
which SEBI can pass orders. Of these, it then analysed which of such orders are
quasi-judicial and hence appealable. It also specified which of them provide
for administrative powers or legislative powers and hence not appealable to the
SAT. It observed as follows:-

“It may be stated that both Rules made u/s. 29 as
well as Regulations made u/s. 30 have to be placed before Parliament u/s. 31 of
the Act. It is clear on a conspectus of the
authorities that it is orders referable to sections 11(4), 11(b), 11(d), 12(3)
and 15-I of the Act, being quasi-judicial orders, and quasi judicial orders
made under the Rules and Regulations that are the subject matter of appeal u/s.
15T. Administrative orders such as circulars issued under the present case
referable to section 11(1) of the Act are obviously outside the appellate
jurisdiction of the Tribunal for the reasons given by us above.” (emphasis supplied).

Accordingly, the Court set aside the
order of SAT and held that the circular was issued in exercise of
administrative functions by SEBI and hence not appealable to SAT. It,
however, clarified that the parties were free to challenge the circular and
seek judicial review.

Conclusion