SEBI as property dealer: Crowning of Statutory role or mere observation of Apex Court
Published: Jan 23, 2017
THE Securities and Exchange Board of India (SEBI), pertinently known as a market regulator, which is responsible for investor protection and development & regulation of the securities market in India, has fallen unconscious of its role and scope of jurisdiction. The scope of SEBI's jurisdiction over the issue of securities by public companies has become an important question, with the recent direction given by the Supreme Court to SEBI on 26th March, 2016, whereby the SEBI was asked to initiate the process of selling 87 "unencumbered" properties of Sahara group, whose title deeds are with the market regulator, to generate the bail money for release of its chief Subrata Roy who has been in jail for two years now.
In pursuance of the direction given by the Apex Court, one can deduce that with the limited resources and a regulator of security market, SEBI can play one more role as a 'property dealer'. However, is it correct to presume so, as the concerned order has been made depending upon the facts and circumstances of such case and the same can never be implied as a ratio decidendi of the Highest Forum? The order, asking SEBI to proceed with the sale of properties, came when the Senior Counsel Kapil Sibal appearing for SAHARA, submitted that the group was finding it increasingly difficult to sell its properties in the current market environment. Armed with new powers, the SEBI has initiated the process of attaching and selling securities held by entities that have failed to pay penalties imposed by the regulator, and accordingly passed orders allowing the recovery officer to sell securities held by the defaulters. These are the first instances of SEBI moving beyond the attachment of movable properties.
It is seen that Section 28A of the SEBI Act, which has been inserted as part of Securities Laws (Amendment) Act, 2014 empowers SEBI to attach and sell movable as well as immovable property of the defaulters without recourse to any court of law. The Section states that if a person fails to pay the penalty as imposed by an adjudicating officer, then a recovery officer can proceed to recover them by attaching the person's bank accounts along with attachment and sale of the movable and immovable property. These additional powers have strengthened the capital market regulator as they prevent defaulters from delaying the process by appealing in court. Apart from the powers to attach and sell assets of defaulters, the Act empowers SEBI to conduct searches and seek information from suspects, both within and outside the country. In the past, SEBI has passed some such orders, but faced legal challenges questioning its right to do so, in the absence of a specific provision to the effect.
A comparison of the US Securities Exchange Act, 1934 with that of the Securities & Exchange Board of India Act, 1992 shows that the US Securities Exchange Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated, is violating, or is about to violate any provision of its rules or regulations or those of a national securities exchange. The SEC is authorized to publish information concerning any such violations, and to investigate any facts, conditions, practices, or matters which it may deem necessary or proper to aid in enforcement, in the prescribing of rules and regulations, or in securing information to serve as a basis for recommending further legislation.
On the other hand, the SEBI Act of 1992 was mostly a list of responsibilities of the regulator and was devoid of reasonable statutory backing for discharging the responsibilities. Many shortcomings in the legal provisions of the SEBI Act were noticed, particularly with respect to SEBI's powers of inspection, investigation and enforcement. Therefore, these laws were substantially revised over the past decade and finally in the SEBI (Amendment) Act, 2002, these laws have evolved on the lines of the US SEC laws in many areas. With this amended regime alike SEC, SEBI could bring under its jurisdiction various classes of market participants in order to ensure the orderly functioning of the securities market. All market participants are registered on presenting certain relevant information to the regulator and the brokers who were mostly found to be involved in market manipulation in India, were then required by SEBI to maintain all books of accounts, so that all deals made by them would be accountable. The SEC laws, however, going towards a step further, requires the broker to maintain records that monitor the viability of the businesses of all who deal in securities through them. This ensures that the responsibility for monitoring all entities a registered broker/dealer deals with, lies with the broker/dealer himself.
However, though the securities laws in India have been formulated and reformulated several times mostly in line with those of the US SEC; but despite significant advancement in the coverage of laws as well as improvement in supportive infrastructure, the regulator often finds itself helpless in preventing securities crimes and in protecting small investors when a scam brews. SEBI was indeed ill-equipped to take care of the scams in the mid-1990s, as it was balancing its role as a developer as well as regulator of the nascent capital market and did not have sufficient statutory powers to convict and punish the guilty. The problem with formulation of Indian laws seems to be that they are often sets of amendments made after finding some lacunae in the system, and as a result are always unambiguous. However, as they stand now the scope of the Indian laws seems to be quite pervasive and the problem appears to lie more in enforcing compliance.
Inadvertently, when the Apex Court directed SEBI to undertake civil administration by attachment and auctioning of defaulter's properties, and the Board (SEBI) expressed its inability to manage sale and auction of the properties at a large scale, an assurance was suggested by the Courts to take help of external agencies. But, knowing the fact that civil law is the toughest law in the country, the verification of title deeds will pose to be the biggest challenge for SEBI. Although this was not the first time the court proposed such a move, and several times in past hearings, SEBI counsels had expressed inability to take this up, saying the regulator neither had the expertise nor the resources for such a task.
Therefore, the law of the land given by the Apex Court is undoubtedly a milestone in India's Corporate landscape, as it not only sanctifies SEBI's absolute power to investigate into the matters of listed companies, but also into the matters pertaining to the unlisted companies. It vests SEBI with myriad powers to investigate into any matter concerning the interest of the investors even if it pertains to companies which are not listed. But, the scope of SEBI's jurisdiction cannot be extended so as to include within its domain the role of a 'property dealer'. There seems to be a smaller problem compared to the lack of experience that SEBI officials have in dealing with asset sale as this task is usually performed by investment bankers in case of private companies.
As earlier mentioned in this article, that the Apex Court has asked SEBI to interfere and sell properties of the Sahara Group for recovering the money of investors, only upon the plea made by the Group as its incapability to dispose off with the assets. Further, the Apex Court has not declared that the SEBI will go through the same process in case of every debtors, and this has been done in this particular case as a huge sum of investors has been on stake. Therefore, it is difficult to presume that SEBI will go on knocking the door of every defaulter debtor to dispose their assets.
