The cases are expected to be heard by a two-member bench, comprising Justices Sanjiv Khanna and S. V. N. Bhatti. The SC had served notices to all the parties on 7 August, according to the court website.

According to existing rules, two Sebi officers of varying seniority levels—adjudication officers and whole-time members (WTMs)—can issue quasi-judicial orders. While adjudication officers handle general orders, WTMs issue orders concerning matters of larger investor interest. In certain instances, both WTMs and AOs initiate proceedings against the accused.

One of the cases mentioned involves S. K. Chowdhary, former independent director of Austral Coke, which conducted an initial share sale in 2008. Sebi found discrepancies in the company’s offer document. An independent investigation by Sebi was initiated and action was taken against Chowdhary as well as other board members by both the AO and the WTM. In July 2022, the AO exonerated the accused for insufficient evidence. However, Sebi’s WTM, in an order on 5 December 2022, found the accused guilty and ordered him to return ₹29.42 crore of the IPO proceeds.

“The question which arises for consideration is, that once an AO, after making an inquiry and adjudicating the matter quashes the proceedings, is it open to an another authority of Sebi to adjudicate the same issue on the same facts under Section 11 and 11B of the Sebi Act and pass contradictory orders,” the Securities Appellate Tribunal (SAT) asked in a 12 April order.

SAT also criticized Sebi for not following a consistent approach and observed that the orders of an AO will be binding on Sebi in such cases.

“In our opinion the authorities of the board, while passing quasi-judicial orders, are required to take a consistent view in a matter,” the appellate tribunal said. “If the AO after applying his mind, and after considering the material evidence on record passes an order exonerating an appellant, then the order of the AO which is an order of the regulator, Sebi, is binding upon the WTM and it is not open for the WTM to take a different view,” it had said.

However, Sebi board has the authority to overturn any order passed by an AO if it believes the order is erroneous and not in the interests of the security markets. This can be done through a special provision under the rules. But in this instance, Sebi did not seek a review, leading SAT to conclude that the order was final and binding on Sebi. In the past, questions over consistency of Sebi’s regulatory actions have sparked debates. Even the Sapre Committee, appointed by the Supreme Court itself, had made similar recommendations after the Adani-Hindenburg issue.

“Effective enforcement policy would mean laying down criteria on the basis of which Sebi may choose whether to initiate proceedings and what type of proceedings to initiate, in a clear, reasoned and non-arbitrary fashion. Enforcement must also be consistent with the legislation and policy stance of Sebi,” the panel had observed.

Updated: 22 Aug 2023, 11:31 PM IST