Not Every Interpretation Of Law Would Amount To A Question Of Law : Supreme Court Explains Scope Of Appeal Under Section 15Z SEBI Act

The Supreme Court, while dismissing an appeal against an order passed by Securities Appellate Tribunal, explained the scope and ambit of statutory appeal under Section 15Z of the Securities and Exchange Board of India Act, 1992.

In this case, the Securities Appellate Tribunal set aside the order passed by the Securities and Exchange Board of India restricting the respondent-company from accessing the capital market for one year and further restraining the promoter directors from buying, selling or otherwise dealing with securities for India. SEBI had held that the Company violated the provisions of the SEBI Act and the PFUTP Regulations.In appeal filed against this order, the bench framed the following issues:

1. What is the scope and ambit of statutory appeal to the Supreme Court under Section 15Z of the Act against an order passed by the Securities Appellate Tribunal?
2. Whether the advertisements dated 07.04.2005 and 20.04.2005, are in violation of Regulations 3 (a), (b), (c), (d) read with Regulation 4 (1), (2) (k) and (r) as amounting to misleading and defrauding the investors?
3. Whether the Company has violated Regulations 3(a), (b), (c) and (d) and Regulation 4(1), 4(2)(k) and 4(2) (r) of the SEBI (PFUTP) Regulations, 2003 by manipulating the share prices and accounts?
4. Whether there is a right to cross-examine the author of a document if SEBI seeks to rely on that document which is against the interest of the company?

Answering the first issue, the bench observed thus:

1. The Supreme Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal. A question of law may arise when there is an erroneous construction of the legal provisions of the statute or the general principles of law. In such cases, the Supreme Court in exercise of its jurisdiction of Section 15Z may substitute its decision on any question of law that it considers appropriate.
2. Not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction under Section 15Z. The Tribunal while exercising jurisdiction under Section 15T, apart from acting as an appellate authority on fact, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime. These very principles are applied consistently for structural evolution of the sectorial laws. This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z 

The court noted that the second and third issues involved factual aspects and thus answered it against the appellant by confirming the findings by SAT.

Regarding the fourth issue, the court observed that there was no necessity for the Tribunal to lay down as an inviolable principle that there is a right of cross-examination in all cases. Therefore it set aside the findings of the Tribunal to this extent while upholding its decision on all other grounds.  We would also leave the question of law relating to the right of cross-examination open and to be decided in an appropriate case by this Court, the bench said.

Case details

Securities and Exchange Board of India vs Mega Corporation Limited | 2022 LiveLaw (SC) 319 | CA 2104 of 2009 | 25 March 2022

Coram: Justices L. Nageswara Rao and PS Narasimha

Headnotes

Securities and Exchange Board of India Act, 1992 ; Section 15Z - Scope and ambit of Statutory appeal against Securities Appellate Tribunal orders to Supreme Court -  The Supreme Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal. A question of law may arise when there is an erroneous construction of the legal provisions of the statute or the general principles of law. In such cases, the Supreme Court in exercise of its jurisdiction of Section 15Z may substitute its decision on any question of law that it considers appropriate. (Para 20.1)

Securities and Exchange Board of India Act, 1992 ; Section 15Z, 15T - Question of law - Not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction under Section 15Z. The Tribunal while exercising jurisdiction under Section 15T, apart from acting as an appellate authority on fact, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime. These very principles are applied consistently for structural evolution of the sectorial laws. This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z. (Para 20.2)

Words and Phrases - Question of law - Phrases such as, 'question of law', are open textual expressions, used in statutes to convey a certain meaning which the legislature would not have intended to be read in a pedantic manner. When words of the Sections allow narrow as well as wide interpretations, courts of law have developed the art and technique of finding the correct meaning by looking at the words in their context. (Para 14-16)

Securities and Exchange Board of India Act, 1992 - SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003- There is a right of disclosure of the relevant material. However, such a right is not absolute and is subject to other considerations as indicated under paragraph 62(v) of the judgment in T. Takano v. Securities and Exchange Board of India 2022 LiveLaw (SC) 180. In this judgment, there is no specific discussion on the issue of a right to cross-examination but the broad principles laid down therein are sufficient guidance for the Tribunal to follow. (Para 35)

Summary: Appeal against Securities Appellate Tribunal which set aside the order passed by SEBI restricting the respondent-company from accessing the capital market for one year etc - Dismissed -  The general observations of the Tribunal that there is a right of cross-examination set aside.