In general, government agencies and regulators have unbridled powers that allow them to shut down businesses or destroy lives on a whim or an assumption. And, only the truly naïve, really believe that India's slow and largely corrupt judiciary (especially at the lower levels) delivers justice or delivers it when it is still relevant. Most Indians expect at least the apex court to be fair, but strange judgements even from the highest court are not rare. Often, they are a result of unequal legal firepower inside a courtroom. Recently, a lawyer wrote an impassioned piece in a business paper about how a recent Supreme Court judgement has armed the Securities and Exchange Board of India (SEBI) with more draconian powers that will allow it to put people out of business through ‘directions’ issued under Sections 11(b) and 11(4) of the SEBI Act, 1992.
The apex court has ruled that such directions, which stop a person or firm from trading or dealing in the capital market or raising public funds, are not ‘penal’ in nature so long as SEBI can show that its actions are ‘in the interest of the securities market’. If such trading forms the core of his/her business, then SEBI effectively puts the person or entity out of business.
The case in question relates to the promoter of a company, who was restrained for five years from dealing in securities or associating with any company to access the capital market. The action pertained to mis-statements in the prospectus that occurred before SEBI was armed with the power to issue such directions through Section 11(b). The promoter argued his case, won at the Securities Appellate Tribunal, but lost at the Supreme Court when SEBI challenged the case. The precedent set in this case will probably hurt many others too, some of them being innocent.
But I have had quite a contrary experience with this company that fought the regulator all the way to the Supreme Court. Sometime in the early 1990s, while I worked for the Times of India, we wrote about some action against this company when it was apparently planning a public issue. A senior management representative came to meet me and, after some half-hearted comments about our article, handed me an envelope. Instead of the expected rejoinder to our article, it was stuffed with currency notes. I called the security guards and had him shown out. I find it hard to believe that the long battle of the same company with SEBI right up to the apex court was on a matter of principle!
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