SAT pulls up Sebi for lack of uniformity in penalising market players

A recent order by the Securities Appellate Tribunal (SAT) has brought to the fore the issue of lack of uniformity in actions taken by the Securities and Exchange Board of India (Sebi) in similar offences by different market participants. Hearing an appeal filed by Almondz Global Securities Limited the tribunal quashed the remaining punishment against the merchant banker after highlighting the fact that similar offences by other entities saw a much more lenient penal action by Sebi officials. In December 2011, Sebi issued an interim order barring the merchant banker from taking on any new assignment till further directions. The final order was issued only in March 2014, barring the banker for six months. The Sebi investigation found due diligence wanting on part of the banker, which was managing the public issue of Bharatiya Global Infomedia. The tribunal, in its order, said it does not feel that the violation by Almondz Global was grave enough to invite such a “severe punishment.” It cited similar violations by merchant bankers like Axis Capital, SBI Capital Markets, Edelweiss Financial Services, Keynote Capital and Chartered Capital and Investment and noted that none were suspended from taking on new assignments till the investigation was over. This is not the first time the tribunal has highlighted the lack of uniformity in actions taken by adjudicating officers of Sebi. In August 2014, it even went to the extent of saying that if adjudicating officers rely on orders passed by other officials, then such orders should be taken into account before passing the final order. Further, if the officer disagrees with an earlier order, then the reasons should be recorded, it said. “If every adjudicating officer of Sebi passes an independent order without bothering to consider the decision taken by another adjudicating officer of Sebi in a similar set of circumstances, then there would be complete chaos and total lawlessness,” said the tribunal while hearing the appeal filed by R M Shares Trading Private Limited An email query sent to Sebi asking whether there is any protocol to ensure uniform action against similar offences by market participants remained unanswered till the time of going to press. “If one analyses orders passed by Sebi against merchant bankers, an interesting aspect comes to the fore. There is no uniform standard of due diligence expected of merchant bankers in a public issue process,” says Vaneesa Agrawal, a securities lawyer and a former Sebi official. “In similar facts, Sebi has been lenient in some cases and unduly harsh in others. The situation is a case study, a brief snapshot of which can be seen in this SAT order (in the Almondz Global matter). The Association of Merchant Bankers of India along with Sebi could probably develop an objective checklist as to the peripheries of due diligence, which today is subjective,” says Ms. Agarwal. Late last month, while hearing appeals filed by Krishna Enterprises and Rajesh Service Centre, the tribunal said Sebi is blindly supporting orders passed by its adjudicating officers. Along with orders passed by Sebi, those passed by Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority can also be challenged at SAT.