SAT's Achilles' Heel: The Urgent Case For Contempt Powers

The SAT was born under Section 15(K) of the SEBI Act; equipped with a specialized task of reviewing appeals arising out of the orders passed by SEBI & Stock Exchanges. SEBI Act bestows several powers to the SAT that are akin to the powers of a Civil Court.

Evidently, the SAT is the singular judicial authority in India's vast and rapidly growing securities market, where billions are traded daily, and the stakes continue to rise. Given the SAT's status as the sole tribunal empowered to adjudicate appeals arising out of Orders of SEBI, the Insurance Regulatory and Development Authority of India ("IRDAI") and the Pension Fund Regulatory and Development Authority ("PFRDA"); the fact that the SAT is the rightful overwatch becomes a no-brainer.

Notably, Presiding Officer of the SAT has been a former High Court Judge or Chief Justice which, in turn, reflects upon the stature of the SAT and the judicial expertise it commands. The uniqueness of SAT's status further draws strength from Section 15M of the SEBI Act, which states that only judicial experience of the High Court can be at the helm of the Tribunal. Hence, the threshold of qualification to preside over the Tribunal etched in the SEBI Act, further solidifies the enormous judicial standards the Tribunal embodies. Though SAT does not hold the constitutional position of a High Court, its role in the legal hierarchy is distinctive, crafted specifically to address the specialized demands of securities regulation. Section 15Z of the SEBI Act further fortifies this role by directing appeals from the SAT's judgments directly to the Supreme Court.

Together, Sections 15M and 15Z cement the SAT's position as a judicial pillar within India's regulatory framework, endowing it with a unique authority to act as both the guardian of market integrity and a specialized arbiter of securities law—making its role indispensable to the strength and stability of India's financial ecosystem.

Tribunalisation and SAT's raison d'être (reason for existence)

To delve deeper into the discussion, one cannot turn a blind eye to the phenomenon of 'Tribunalisation'. Tribunalisation refers to the creation of tribunals as an alternative to conventional court system. The core essence of the existence of Tribunals is etched in the ever-surmounting workload of courts. In order to expedite decisions and to provide a specialized forum, Tribunals were set up to serve a crucial role in justice mechanism. In a way, the delay in justice administration is one of the biggest obstacles that have been tackled with the establishment of Tribunals.

Tribunalisation in India led to the creation of specialised Tribunals. Among a plethora of powers bestowed upon such Tribunals, the powers to punish for contempt surfaces as a vehemently crucial one. For instance, the National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) are empowered through Section 425 of the Companies Act 2013 which states:

“425. Power to Punish for contempt. -

The Tribunal and the Appellate Tribunal shall have the same jurisdiction, powers and authority in respect of contempt of themselves as the High Court has and may exercise, for this purpose, the powers under the provisions of the Contempt of Courts Act, 1971 (70 of 1971), which shall have the effect subject to modification that-

• The reference therein to a High Court shall be construed as including a reference to the Tribunal and the Appellate Tribunal; and
• The reference to Advocate-General in section 15 of the said Act shall be construed as a reference to such Law Officers as the Central Government may, specify in this behalf.”

However, the SAT has long grappled with a significant gap in the codification of regulations. To comprehend the depth and implications of this issue, it is essential to examine past judicial interpretations, such as the case of Phenomenal Plantations Ltd. versus SEBI (“Phenomenal”). In the matter, Phenomenal filed a contempt application in front of the Tribunal alleging that SEBI had issued a defamatory and prejudicial letter to an investor, which could undermine the judicial process. But the Tribunal stated that it lacks codified powers to adjudge such an application as it is not empowered to punish for contempt. A relevant excerpt from this judgment elucidates the intricacies and nuances of the subject :

“Now, coming to the Appellant's application seeking action against the Respondent for the alleged contempt, it is to be stated that this Tribunal has no power to punish any person, for contempt of the Tribunal. All that the Tribunal can do in case it is satisfied that the conduct of the person attracted action under the Contempt of Courts Act, is to forward the matter to the High Court for such action, the High Court may deep fit to take. In this instant case the Appellant's grievance is that during the pendency of the appeal, one of the officers of the Respondents issued a letter, which according to the Appellant amounts to contempt of Court.”

Evidently, the explicit acknowledgment of the lack of authority to punish for contempt by the SAT in Phenomenal brought to the forefront a disconcerting anomaly. Stating that the Tribunal can only refer such matters to the High Court for appropriate action, the statutory limitation of tribunals like SAT was brought to the forefront. Tribunals such as the SAT were set up in the first place to lighten the burden of the High Courts. If the parties have to take the route of a High Court concerning contempt of court, then the whole phenomena of Tribunalisation becomes a paradoxical flaw.

This paradoxical flaw becomes even more pronounced when viewed against the broader trajectory of the dawn of expansion and scope of the SEBI Act, which underwent significant reform in 2002 (“2002 Amendment”). In a way, the 2002 Amendment aspired to strengthen the Tribunal's structure by refining the composition and elevating the qualifications required for the Presiding Officers, thereby enhancing the Tribunal's ability to navigate the complexities of an evolving and increasingly sophisticated securities market. However, the SAT's Achilles Heel i.e. the absence of codified contempt powers, went unnoticed.

Economic legislation, in essence, is empiric—shaped by experimentation and informed by the need to address evolving realities. The SEBI Act is no exception. While it represents a comprehensive framework to regulate and protect the securities market, it must also anticipate potential abuses that threaten market integrity. One such foreseeable challenge is non-compliance with the Tribunal's orders, which risks eroding the trust and efficiency such institutions are meant to embody.

When the SEBI Act was first enacted, the Indian securities market was still at a nascent stage relatively to the global spectrum. But today, India, as a haven of investment clubbed with the advent of the digital age, has compelled the entire world to look east rather than west. Naturally, this flux of participants from all across the world is drawing non-compliant entities as well. In such a scenario, the sole tribunal ought to be well armed with the powers to command swift compliance of the directives that guard the sanctity of the Indian Securities Market.

All in All

In India's colossal securities market where billions move at the speed of light, an impediment still lurks for SAT in terms of the ability to command compliance of the directives that emanate from the Tribunal's adjudication. When Tribunals like the NCLT and NCLAT are fortified with contempt powers, why should the sentinel of the securities market remain bereft of such codified powers?

Today, the Indian securities market is entering a “stratospheric domain”, stretching past the horizon that the SEBI Act, at inception, could not have contemplated. The SAT, being the rightful and sole overwatch of the securities market (including pension and insurance matters), must be granted the tools of power necessary to uphold its decisions effectively. Needless to say, this void has metamorphosized itself into a legislative imperative by now. All in all, codifying contempt powers for the SAT would ensure that non-compliant market participants do not escape from the Tribunal's judicial clutches as the 'what ifs' in this regard, are numerous.

Authors: Adv. Ravi Prakash (Associate Partner), Adv. Mohit Sirohi (Associate) and Adv. Siddhant Sekhri (Associate) At Corporate Professionals Advisers & Advocates. Views are personal.