Securities Appellate Tribunal order not a loss of face, says SEBI

The Securities and Exchange Board of India (SEBI) on Wednesday said that the decision by the Securities Appellate Tribunal (SAT) to set aside a SEBI order slapping a Rs.1-crore penalty on Mauritius-based Goldman Sachs Investments did not amount to a “loss of face” as imputed recently by AIADMK general secretary Jayalalithaa. In a statement, SEBI said the SAT order had been issued only on the grounds that the market regulator could not ask foreign institutional investors (FII) to furnish an undertaking that they had not dealt in overseas derivative instruments (ODI) with Indian residents, NRIs/PIOs or OCBs in the absence of a bar on such deals in the regulations. SEBI’s response comes after it was asked by the Union Finance Ministry for its comments on Ms. Jayalalithaa’s allegation that the Ministry and market regulator SEBI were ineffective in regulating investments (Participatory Notes) coming from abroad. SEBI pointed out that the SAT order in the Goldman Sachs case dealt with the issuance of SEBI’s powers to require undertakings with regard to issuance of ODIs to NRIs/PIOs/ OCBs in the absence of a prohibition on such issuance in the regulations. The order did not take away SEBI’s powers to seek information with regard to issuance of ODIs. SEBI also pointed out that in para 6 of its order, the SAT had clarified that it was not even, for a moment, suggesting that SEBI could not call upon FIIs to report their activities. The SAT order objected only to an undertaking that was prescribed and had stated that an undertaking could only require what was prescribed in the regulations. SEBI sought to make a distinction between the power to call for information from FIIs/sub-accounts and the format of the undertaking it had asked for, which had been disapproved by SAT. “It is not just the position of law that the information regarding ODIs can be called for. In fact, the FIIs, including Goldman Sachs, actually file such information with SEBI every month.” On Jayalalithaa’s remark that the SAT overruling amounted to a loss of face for the market regulator, SEBI stated that it was inappropriate to comment on the orders of the appellate body. However, SEBI would carefully study the reasoning given by SAT to improve the quality of SEBI orders.