Define guidelines: SAT tells Sebi

Capital market regulator Securities and Exchange Board of India (Sebi) has received a rap on the knuckles from the Securities Appellate Tribunal (SAT) yet again. SAT has asked Sebi to define the word ‘‘guidelines’’ under the Sebi Act since many of its guidelines, while being punitive in nature, still don’t have the authority of law. According to SAT, Sebi releases various guidelines and expects capital market intermediaries to follow them, but they don’t have legal validity since they are not passed by the Parliament and, therefore, aren’t law. In a recent order issued by Justice Kumar Rajaratnam, presiding officer, and NL Lakhanpal, member, SAT, said, ‘‘While the Sebi Act recognises ‘rules’ and ‘regulations’ in sections 29 and 30, there is, however, no definition of the ‘guidelines’. The issue before SAT in that particular case was whether Sebi had the power to issue guidelines without those being laid before the Parliament as required under section 31 of the Sebi Act. A senior Sebi official said, ‘‘We’ve already initiated the process of converting various Sebi guidelines into regulations much before the SAT order was pronounced. We expect to conclude this process very soon’’. The SAT order said, the relevant Guidelines in that case had not been laid before Parliament unlike the Sebi Rules and Regulations, which are required to be laid before Parliament. The vexed question, therefore, is what is the sanctity of the guidelines under which a person is proceeded against. If the Sebi Act recognises only ‘Rules’ and ‘Regulations’, can it be said the ‘guidelines’ are in the nature of a circular? However, guidelines cannot mandate violation of substantial laws unless such a power is expressed in the form of a legislation in the Act. ‘‘We have no difficulty in understanding the power of the central government or the Sebi Board, as the case may be, to issue ‘Rules’ and ‘Regulations’ respectively. But can Sebi create a new class of procedure, which is ultimately punitive in nature without the authority of the law,’’ the order said. The order said ‘‘However, we would like to add that a time has come to define guidelines in the Sebi Act and to end this controversy once and for all. Issuance of such guidelines in conformity with the provisions of the Sebi Act will be beneficial to the market watchdog and to the investor public for the efficient management of the Securities market. Sebi must be empowered in the Act to issue guidelines from time to time. This power will enable Sebi to take action for violation of the guidelines in accordance with law as is being done for violation of the Regulations’’.