Mumbai: The Securities Appellate Tribunal Monday dismissed Reliance Industries' appeal against SEBI for rejecting its consent application for alleged violations of norms in dealings with RPL shares but came down heavily on the market regulator over the way in which it handled the issue.
"Since Section 15JB(4) bars appeal against any order passed in consent proceedings, we have no option but to dismiss the appeal," a full bench of the SAT headed by presiding officer JP Devadhar and members Jog Singh and AS Lamba said, bringing the curtains down on the four-year proceedings.
"Ordinarily, we would have considered maintainability of appeal first and thereafter consider merits of appeal only if the appeal is maintainable. In the present case, after appeal was heard on merits, questions regarding maintainability of the appeal arose in view of SEBI framing 2014 Regulations retrospectively in exercise of powers conferred by Section 15JB inserted to SEBI Act retrospectively.
"There is no dispute that Section 15JB itself has been in and out of operation in view of promulgation and lapsing of the Ordinance No. 8 of 2013 and Ordinance No. 9 of 2013 from time to time, and there is no dispute that as on date Section 15JB (4) is in operation," SAT said in its order.
However, the tribunal came down heavily on SEBI and termed its decision to reject RIL's consent application as "arbitrary and in excess of the powers" vested in it under the SEBI Act of 1992.
Despite accepting RIL's contention questioning the way its application was rejected by SEBI, it said considering the manner in which amendments were made to the consent process through ordinances, it has no powers to accept the RIL petition as the changes were notified retrospectively.
Explaining the reasons for dismissing RIL's petition, in its 24-page order, SAT bench said insertion of Section 15JB(4) to the SEBI Act, 1992 by Ordinance No. 8 of 2013, Ordinance No. 9 of 2013 and Ordinance No. 2 of 2014, had taken away its powers to entertain appeals against SEBI orders in consent proceedings.
"The effect of insertion of Section 15JB to SEBI Act with retrospective effect from April 20, 2007 as also insertion of Section 30A to SEBI Act by Ordinance No. 2 of 2014 to the present appeal would have to be seen. (Accordingly) Section 15T(2) of SEBI Act (as it then stood) provided that no appeal shall lie to this tribunal from an order made by SEBI with the consent of parties." it said.
"By deleting Section 15T(2) and inserting Section 15JB as also Section 30A, the legislature has sought to make partial bar under Section 15T(2) into complete bar under Section 15JB with retrospective effect from April 20, 2007 in relation to appeals against orders passed in consent/settlement proceedings," SAT said justifying dismissal of RIL plea.
Meanwhile, RIL in a statement claimed partial victory saying the tribunal has accepted its plea that the SEBI order rejecting its consent plea was maintainable under the SEBI Act but it lost the case because of the retrospective amendments to the sections dealing with consent process.
The company, however, did not say whether they will appeal in the Supreme Court. SAT orders can only be challenged in the apex court.
SAT said, "Having taken nearly two years to furnish inspection documents and having furnished copies of documents running into 1,300 pages in the last week of November 2012, SEBI ought to have awaited decision in appeal No. 224 of 2012 or at least given one opportunity to the appellant to present its case after allowing full inspection of documents," it said.
The bench said that "undue haste" was shown by SEBI in disposing of the consent application even before disposal of appeal No. 224 of 2012.
"We hold that SEBI was not justified in rejecting the consent application without giving an opportunity to the appellant to present its case for settlement of the dispute," SAT said.
SAT said although, Section 15T(2) takes away the power of SAT to hear any consent petition, "it is apparent that the bar is restricted to an order passed on merits of the consent application and would not apply to an ex-parte order passed in breach of the principles of natural justice.
"In other words Section 15T(2) prohibits appeal against an order which is passed after considering the consent proposal put forth by the applicant during the discussion with the internal committee of SEBI. Therefore, in the present case, where the impugned order is not an order passed with the consent of the parties but is an ex-parte order, appeal against impugned order was maintainable before this tribunal under Section 15T(1) (deleted) of SEBI Act," the order said.
Noting that the present case relates to transactions that took place in 2007 and SEBI issued show cause notice on April 29, 2009, it said the regulator had no reason for delaying the consent application filed by RIL on November 5, 2009, which it rejected on March 8, 2010.
"Instead of adjudicating the show cause notice, SEBI reinvestigated the matter and issued fresh show cause notice on December 16, 2010 by superseding earlier show cause notice dated April 29, 2009," SAT said and noted that RIL second application was also rejected "arbitrarily" and the impugned order was passed by SEBI on January 2, 2013.
"The impugned decision of SEBI which abruptly seeks to reject consent application of appellant by ex-parte order dated January 2, 2013 has caused prejudice not only to appellant but also to investors at large."
However, the SAT said it was not expressing any opinion on the merit of the RIL consent application, saying "whether the terms offered by RIL deserve to be accepted or not is a question left entirely to the discretion of SEBI.
"We are only finding fault with SEBI for keeping the consent application pending for years even after holding that request for inspection of documents is untenable and thereafter allowing inspection in installments," it concluded.
The dispute related to sale of around 20 crore Reliance Petroleum shares by RIL in November 2007, days before the merger of subsidiary with itself.
RIL, prior to the merger of RPL with itself, allegedly short-sold a 4.1 percent stake in RPL valued at Rs 4,023 crore to prevent a slump in the stock. The RPL shares were first sold in the futures market and later in the spot market, covering the sales in the futures market, it was alleged.
In 2008, SEBI initiated a probe into the matter and in 2010 began quasi-judicial proceedings and said it had found that RIL had booked a profit of Rs 513 crore in the futures segment through this deal worth Rs 4,023 crore.
Under the consent mechanism, a company can settle an issue with the regulator after paying a penalty, without accepting or rejecting the charges against it.
