Delegation Of Quasi-Judicial Functions By SEBI To Its Members Is Permissible: Kerala High Court

The Kerala High Court recently held that the Securities and Exchange Board Of India (SEBI) can delegate the quasi-judicial functions of the Board to its members if the statute permits such delegation. The court noted that Section 19 of the SEBI Act permits delegation of the function and power of the Board to its members, except the powers under under Section 29, being the rule making power of the Board.

A single bench of Justice V G Arun observed that:

“In the Indian context, delegation of quasi-judicial functions is permissible if the statute provides for such delegation. A plain reading of Section 19 of the SEBI Act shows that, all powers and functions of the Board (except the rule making power under Section 29) can be delegated to any member, officer or any other person.”

The court relied on the decision of the Apex Court in Sahni Silk Mills (P) Ltd. v. ESI Corpn. [(1994) 5 SCC 346] where it was held that in light of the rise in the functions to be carried out by statutory bodies the maxim 'delegatus non potest delegare' i.e, 'one to whom power is delegated cannot himself further delegate that power' cannot be applied blindly without consideration.

“As observed in Sahni Silk Mills (P) Ltd (supra), in the present administrative set up judicial aversion to delegation cannot be carried to an extreme. A public authority is at liberty to employ agents to exercise its powers. That is why in many statutes, delegation is authorised either expressly or impliedly. Due to enormous rise in the nature of activities to be handled by the statutory authorities, the maxim 'delegatus non potest delegare' can no longer be applied blindly,” the Court said.

The court was considering a petition filed by a Non-Banking Finance Company (NBFC) registered with the RBI involved in the business of asset financing. A show cause notice was issued to the company by SEBI. The petitioner requested for a personal hearing — it was informed the same would be before the Whole Time Member of the Board. Subsequently, the hearing was adjourned and the Petitioner was informed the hearing would be in front of the Chief General Manager of the Board.

Senior Advocate E K Nandakumar appearing for the Petitioner argued that the proceedings initiated against the Petitioner is quasi-judicial in nature and can only be carried out by the Board. The counsel argued that even though Section 19 of the Act allows for delegation of the Board's powers and functions to any member, officer of the Board, it does not pertain to quasi-judicial functions of the Board.

The Petitioner thus argued that the SEBI (Delegation of Statutory and Financial Powers) Order, 2019, issued in exercise of the power under Section 19 is ultra vires. It was argued that delegating the Board’s quasi-judicial functions including Sections 11(1), 11(4A), 11B(1), 11B(2), 11B of the SEBI Act or any regulations framed by SEBI to the Chief General Manager should not be permissible. The petitioner further argued that Board is best suited to exercise its quasi-judicial functions due its expertise and knowledge, as it is either nominated by the RBI or appointed or nominated by the Central Government.

Senior Advocate Raju Joseph appearing for SEBI argued that under Section 11(1) of the SEBI Act, the Board has the duty to protect the interest of investors in securities and to regulate the securities market, by appropriate means. The counsel for SEBI submitted that Securities and Exchange Board of India (Delegation of Statutory and Financial Powers) Order 2019 was passed by the Board in exercise of the power granted to it under Section 19 of the SEBI Act. It was argued that the delegation of quasi-judicial functions would reduce the pendency of proceedings at SEBI and would lead to timely disposals.

The court observed that the functions of the Board under Sections 11(1), 11(4), 11(4A), 11B, 11D of the SEBI Act are quasi-judicial in nature. These functions can be delegated by the Board to an Officer of the Board, the court concluded.

After referring to a catena of decisions on the subject, the Court observed that “a conspectus of the decisions cited indicates that the wide power to delegate statutory and administrative functions gets restricted when it comes to quasi-judicial functions and is almost non-existent in the case of judicial functions.”

Case Title: BRD Securities Ltd V. Union Of India

Citation: 2023 LiveLaw (Ker) 248

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