1. Whether an appeal lies under Section 15T of the Securities and Exchange Board of India Act, 1992 (hereinafter called the Act) against the circular dated November 9, 2005 issued by the Securities and Exchange Board of India (for short the Board) reviewing the dematerialization charges and whether the said circular is in the interest of the investors are the two questions which arise for our consideration in this appeal. The first question arises on a preliminary objection raised by the learned Advocate General who contends that since the impugned circular is administrative in nature and has been issued under Section 11(1) of the Act to protect the interests of the investors in the securities and to promote the development of and to regulate the securities market, it is not appealable. The argument is that all circulars and policy decisions taken by the Board are beyond the pale of the appellate jurisdiction of this Tribunal. It is submitted that the aforesaid circular was not issued in exercise of judicial/quasi judicial powers and, therefore, no appeal would lie.
2. We will deal with the preliminary objection first. This objection pertains to the scope and ambit of Section 15T of the Act. Since the issue is purely legal, we straightaway refer to the relevant provisions of this Section which read as under: (a) by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made thereunder; or may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.
A reading of the aforesaid provision leaves no room for doubt that any person who feels aggrieved by "an order" made by the Board may prefer an appeal to the Securities Appellate Tribunal (for short the Tribunal). The word "order" according to Blacks Law Dictionary means "a mandate; precept; command; or direction authoritatively given; rule or regulation". The word "order" in Section 15T(1) of the Act is preceded by the word "an". "An", according to the same dictionary is the English indefinite article, equivalent to "one" or "any" which is seldom used to denote plurality. The words "an order" are comprehensive enough to include every order or decision taken by the Board. The word order is not a term of art and it has no fixed legal meaning. It is, thus, clear that every order passed by the Board is appealable to this Tribunal under the aforesaid provision. The learned Advocate General took us through the various provisions of the Act to contend that the Board has the power to pass administrative orders under various provisions particularly under Section 11 when it carries out its statutory duties to promote the development of and to regulate the securities market. He strenuously urged that while carrying out such functions the Board takes policy decisions and issues circulars from time to time which are meant to be carried out by the intermediaries of the market with a view to regulate the same. Referring to Section 11B of the Act he contended that the Board has the power to issue directions to any person or class of persons referred to in Section 12 or associated with the securities market or to any company as it may think appropriate in the interests of investors in securities and the securities market. He also referred to the provisions of Chapter VIA to urge that the Board through its officers has also been given the powers to adjudicate disputes that may arise and, therefore, exercises judicial/quasi judicial power. A reference was also made to the provisions of Section 30 of the Act and it was argued that the Board has legislative powers as well when it frames regulations thereunder. After taking us through the scheme of the Act the learned Advocate General strenuously contended that an appeal would lie only against those orders which are passed by the Board in the exercise of its judicial/quasi judicial functions and not when it exercises administrative powers and takes policy decisions to regulate the securities market and the intermediaries or when it exercises its legislative functions while framing the regulations. He referred to the provisions of Sections 11(4), 11-B, 11-D, 12(3) and Sections 15-A to 15-HB and urged that these are some of the sections under which the Board exercises its judicial power and that the orders passed thereunder would be amenable to the appellate jurisdiction of the Tribunal. He further contended that the Board and its officers also exercise judicial power while issuing directions under various regulations framed by the Board and the exercise of that power too, would be subject to the appellate jurisdiction of the Tribunal. In other words, the learned Advocate General wants the provisions of Section 15T of the Act to be read in a restrictive manner so as to limit the right of appeal only to those orders made by the Board in the exercise of its judicial/quasi judicial functions. Another argument of the learned Advocate General is that, in any case, the impugned circular issued by the Board is legislative in character and, therefore, not appealable. He placed strong reliance on the judgment of the Supreme Court in Union of India v. Cynamide India Ltd. to contend that the impugned circular was legislative in nature, and, therefore, beyond the appellate jurisdiction of the Tribunal.
3. While we agree with the learned Advocate General that the Act provides for integration of power in the Board as an expert body in as much as it performs legislative, executive and judicial/quasi judicial functions, we cannot countenance the plea that the right of appeal under Section 15T of the Act is limited only to judicial/quasi judicial orders. The right of appeal is a statutory right and it has necessarily to be governed by the provisions of the Statute which creates it. It is open to the legislature to restrict that right against a specific class of orders or the said right may be given to a certain class of persons or the said right could be restricted or limited in any other manner as the legislature may deem necessary. The legislature could also make such a right conditional and in that event an appeal would lie only on the fulfillment of such conditions as the legislature may impose. In the instant case, the nature and extent of the appeal will have to be determined and controlled by the language used in Section 15T of the Act. The legislature was conscious that the Board was an expert body in which vests executive, legislative and judicial/quasi judicial powers and when it made a provision for an appeal in Section 15T of the Act it did not limit that right only to orders passed by the Board or its officers in exercise of judicial/quasi judicial powers. There are no such words of limitation in Section 15T and we cannot read such words in the statute which are not there. The language used in Section 15T is of widest amplitude and makes every order passed by the Board appealable, whether it be in exercise of its administrative, legislative or judicial/quasi judicial powers. Had the intention of Parliament been to limit the right of appeal only to judicial/quasi judicial orders, then it would have said so in clear terms in Section 15T of the Act and would not have made every order appealable because it was aware that the Board exercises executive, legislative and judicial/quasi judicial powers. It is pertinent to mention that Parliament has limited the right of appeal where it wanted to. When it provided an appeal to the Supreme Court under Section 15Z of the Act against an order of the Tribunal, it has been restricted to a question of law.State of Maharashtra v. Marwanjee P. Desai observed that the expression "every order" appearing in Section 7 of the Bombay Government Premises (Eviction) Act, 1956 had to be interpreted in its proper perspective and not in a manner restrictive.
The said expression in Section 7 which provides for an appeal against every order of the competent authority was construed to confer a right of appeal to the Government as well and the expression was not restricted to orders in favour of the Government appealable only by the alleged unauthorized occupiers.
5. What is contended by the learned Advocate General is that the circulars issued by the Board and policy decisions taken by it are beyond the appellate jurisdiction of this Tribunal. We are not impressed with this argument. The word "circular" according to Chambers Dictionary means "a letter or notice sent to a number of persons". The Concise Oxford Dictionary (Ninth Edition) defines the word circular to mean a letter, decision or order "for distribution to a large number of people". The Board had taken a decision reviewing dematerialization charges and instead of issuing separately an order to each and every intermediary affected thereby had passed a general order and circulated the same for the benefit of all. It makes no difference and it remains a decision of the Board against which any person feeling aggrieved could come up in appeal. Merely because the Board issued a circular would not take away the right of the aggrieved party to challenge the same in appeal. Can the Board clothe its orders in the garb of a circular and deny the aggrieved party the right of appeal. It cannot be so. The order may be a policy decision, as contended by the learned Advocate General, but that, too, would make no difference. If we accept the argument of the learned Advocate General that all administrative orders and policy decisions of the Board are beyond the pale of jurisdiction of this Tribunal, we would not only be doing violence to the language of Section 15T but also deprive the aggrieved party of any forum to challenge the said decision or order. This could not have been the intention of Parliament. Surely, the orders and decisions of the Board are not immune from challenge. Then, where does the aggrieved party go He/it has to be provided with a forum to redress his/its grievances. The Supreme Court has quite often observed that at least one right of appeal should be given to an aggrieved party and we cannot deny that right by giving a restrictive meaning to the words "an order". We are, therefore, clearly of the view that this Tribunal is the only forum for redressing the grievances of an aggrieved party in as much as the appellate jurisdiction of the Supreme Court is available only on a question of law and the jurisdiction of the Civil Court to entertain a suit is also ousted under Section 15Y of the Act. The jurisdiction exercised by the High Court under Articles 226 and 227 is not the same as is exercised by an expert appellate body in appeal. As already observed, the words "an order" in Section 15T would include every order and we have to read those words without any limitation. It is true that the Board is an expert body, so is the Tribunal, and from the scheme of the Act it is clear that Parliament in its wisdom wanted every order passed by the Board to be scrutinized in appeal by the Tribunal. We may observe that even though every order passed by the Board is amenable to the appellate jurisdiction of this Tribunal, due weight has to be given to the views expressed by the former as a body of experts in its administrative orders, policy decisions and regulations.
6. During the course of arguments it was submitted that legislative activity of the Board could not be the subject matter of appeal before the Tribunal. It was argued that the impugned circular which is legislative in nature could not be appealed against. Here again, we have our reservations. It is clear that the Board exercises its legislative powers when it frames Regulations under Section 30 of the Act. The impugned circular has not been issued in exercise of that power though the word order, according to Blacks Law Dictionary includes a rule and a regulation. It is an administrative decision taken by the Board while performing its duty under Section 11 to protect the interest of the investors. We may mention that even the legislative power of the Board under Section 30 is not without limits.
The exercise of that power is restricted by the provisions of Section 30 itself which provides that the Board may by notification make regulations consistent with the Act and the rules made thereunder to carry out the purposes of the Act. What, if the regulations framed are not consistent with the Act and what, if they do not carry out the purposes of the Act. There has to be a forum to look into these grievances and that is the Tribunal. Again, no specific procedure has been prescribed by the Act which the Board has to follow before framing a regulation except that its decisions are to be notified. If the argument were to be accepted then the Board could notify any or all its decisions and deprive the aggrieved party the right of appeal. It appears to us that the Board cannot be allowed to bye pass the provision for statutory appeal and make it redundant and nugatory. This is impermissible.
7. At this stage, it would be useful to notice the observations of the Apex Court in L. Chandra Kumar v. Union of India with regard to the jurisdiction of the tribunals to test the validity of legislations against the constitutional provisions. After a detailed analysis of the applicable laws the Apex Court observed as under: So long as the Jurisdiction of the High Court under Articles 226/227 and that of this Court under Article 32 is retained, there is no reason why the power to test the validity of legislation against the provisions of the Constitution cannot be conferred upon Administrative Tribunals created under the Act or upon Tribunals created under Article 323-B of the Constitution....It has been contended before us that the Tribunals should not be allowed to adjudicate upon matters where the vires of legislations is questioned, and that they should restrict themselves to handling matters where constitutional issues are not raised. We cannot bring ourselves to agree to this proposition as that may result in splitting up proceedings and may cause avoidable delay. If such a view were to be adopted, it would be open for litigants to raise constitutional issues, many of which may be quite frivolous, to directly approach the High Courts and thus subvert the jurisdiction of the Tribunals. Moreover, even in these special branches of law, some areas do involve the consideration of constitutional questions on a regular basis; for instance, in service law matters, a large majority of cases involve an interpretation of Articles 14, 15 and 16 of the Constitution. To hold that the Tribunals have no power to handle matters involving constitutional issues would not serve the purpose for which they were constituted. On the other hand, to hold that all decisions will be subject to the jurisdiction of the High Courts within whose territorial jurisdiction the Tribunal concerned falls will serve two purposes. While saving the power of judicial review of legislative action vested in the High Courts under Articles 226/227 of the Constitution, it will ensure that frivolous claims are filtered out through the process of adjudication in the Tribunal. The High Court will also have the benefit of a reasoned decision on merits which will be of use to it in finally deciding the matter.
Before moving on to other aspects, we may summarise our conclusions on the jurisdictional powers of these Tribunals. The Tribunals are competent to hear matters where the vires of statutory provisions are questioned. . The Tribunals will consequently also have the power to test the vires of subordinate legislations and rules.
However, this power of the Tribunals will be subject to one important exception. The Tribunals shall not entertain any question regarding the vires of their parent statutes following the settled principle that a Tribunal which is the creature of an Act cannot declare that very Act to be unconstitutional. In such cases alone, the High Court concerned may be approached directly.
8. In view of what has been said above, we have no hesitation to hold that the impugned circular is not legislative in nature and that exercise of legislative power by the Board is also amenable to the appellate jurisdiction of the Tribunal.
9. We may now deal with Cynamide India Ltd.s case (supra) on which strong reliance was placed by the learned Advocate General. In that case the dispute was regarding the price fixation of drugs under the Essential Commodities Act and the Price Control Order issued thereunder and their lordships were dealing with a petition filed in the High Court under Article 226 of the Constitution challenging the price fixation which had been allowed quashing the price fixation by the Government. The Supreme Court observed that "price fixation is neither the function nor forte of the court". It was also held therein that "legislative action, plenary or subordinate, is not subject to rules of natural justice." Thirdly, it was observed that price fixation was ordinarily a legislative activity though occasionally it may assume administrative or quasi judicial character. The scheme of the Essential Commodities Act which was under consideration of the Supreme Court is different from the scheme of the Act which is under our consideration.
Relying on the observations made by the learned judges, the learned Advocate General contended that the impugned circular issued by the Board was legislative in character because it was not directed against any particular intermediary of the securities market but was intended to operate in the future and therefore, it was beyond the appellate jurisdiction of the Tribunal. We do not think that the observations of the Supreme Court in this case apply to the impugned circular which has been issued by the Board in exercise of its administrative functions under Section 11 of the Act to regulate the securities market and protect the interest of investors. Their Lordships were not dealing with the scope of any statutory provision pertaining to appeals. We are primarily faced with the question whether the impugned circular is appealable in terms of Section 15T or not and, therefore, the observations of the Supreme Court in Cynamide India Ltd.s case (supra) do not help us. The impugned circular is nothing but an order issued by the Board which is meant to govern the two depositories and their participants and is also meant to benefit the investors. Instead of issuing the order to the individuals who are large in numbers, the Board has chosen to issue a circular for the benefit of all concerned.
It is squarely covered by the words "an order" appearing in Section 15T of the Act and is appealable.In Clariant International Ltd. and Anr. v. Securities and Exchange Board of India the Supreme Court provisions of the Act and the appellate jurisdiction of the Tribunal which has been constituted to hear appeals against the orders of an expert body like the Board and observed as under: The Board is indisputably an expert body. But when it exercises its quasi judicial functions; its decisions are subject to appeal. The Appellate Tribunal is also an expert Tribunal. Only such persons who have the requisite qualifications are to be appointed as members thereof as would appear from Sub-section (2) of Section 15M of the said Act....
Throughout the world, specialized adjudicators are performing numerous roles. There are diverse specialized tribunals in America as also in the Commonwealth countries. In certain States, statutes have been enacted authorizing appeals to the Administrative Division which jurisdiction used to be exercised by the High Court alone. The appeals range from questions of law to selected questions of fact, to full rehearing of all issues.
Had the intention of the Parliament been to limit the jurisdiction of the Tribunal, it could say so explicitly as it has been done in terms of Section 15Z of the Act whereby the jurisdiction of this Court to hear the appeal is limited to the question of law. The jurisdiction of the appellate authority under the Act is not in any way fettered by the statute and, thus, it exercises all the jurisdiction as that of the Board. It can exercise its discretionary jurisdiction in the same manner as the Board.
The SEBI Act confers a wide jurisdiction upon the Board. Its duties and functions thereunder, run counter to the doctrine of separation of powers. Integration of power by vesting legislative, executive and judicial powers in the same body, in future, may raise a several public law concerns as the principle of control of one body over the other was the central theme underlying the doctrine of separation of powers.
The Board exercises its legislative power by making regulations, executive power by administering the regulations framed by it and taking action against any entity violating these regulations and judicial power by adjudicating disputes in the implementation thereof. The only check upon exercise of such wide ranging power is that it must comply with the Constitution and the Act. In that view of the matter, where an expert Tribunal has been constituted, the scrutiny at its end must be held to be of wide import. The Tribunal, another expert body, must, thus, be allowed to exercise its own jurisdiction conferred on it by the statute without any limitation.
11. In view of our findings recorded hereinabove and in the light of the observations made by the Supreme Court in Clariant International Ltd.s case (supra), we have no hesitation in rejecting the preliminary objection raised on behalf of the respondent Board which we hereby do and hold that the words used in Section 15T of the Act are of widest amplitude and every order including the impugned circular passed by the Board is amenable to the appellate jurisdiction of the Tribunal. In the written submissions filed after the conclusion of arguments, the Board has placed reliance on some other decisions of the Supreme Court as well and xerox copies of those judgments have also been furnished. We have carefully gone through those judgments and are of the view that none of them advances the arguments raised on behalf of the Board that the impugned circular is not appealable. It is, therefore, not necessary to deal with those judgments separately.
12. This brings us to the merits of the impugned circular and we will now examine whether it is in consonance with the objects sought to be achieved by the Act. The policy of the Board is to encourage investors to hold securities in demat mode (electronic form) which are held by depositories on behalf of the beneficial owners (investors). In order to appreciate the true import of the impugned circular it is necessary to understand how a depository and its participants function. A depository is a company formed and registered under the Companies Act which has been granted by the Board a certificate of registration under Sub-section (1A) of Section 12 of the Act. Learned Counsel for the parties inform us that at present there are only two depositories in the country viz. the National Securities Depository Limited the appellant herein and Central Depository Services (India) Limited (CDSL). A depository has to enter into an agreement with one or more participants as its agents and any person who wishes to avail of the services of a depository is required to enter into an agreement with it through a participant. The securities held by a depository are dematerialized and in fungible form. A depository is deemed to be the registered owner for the purpose of effecting transfer of ownership of securities on behalf of the beneficial owner. Of course, the depository as a registered owner has no voting rights or any other rights in respect of securities held by it and it is the beneficial owner who is entitled to all those rights and benefits and is subjected to all the liabilities in respect of his securities held by a depository. Every depository is required to maintain a register and an index of beneficial owners in the manner provided in the Companies Act. Every depository has to furnish to the person issuing the securities, information about the transfer of securities in the name of beneficial owners at such intervals and in such manner as is provided by law.
13. The depositories and their participants levy charges on the opening of new demat accounts, custody charges and transaction charges towards the credit of the securities. The Board as a regulator of the securities market had issued a circular on January 28, 2005 rationalising the tariff structure with regard to the levy of these charges. After issuance of the circular several representations were received by the Board from the investor community and with a view to encourage more investors to hold securities in demat mode, the Board as per the aforesaid circular made entry into the demat environment free except from applicable statutory charges. The Board found that depositories and their participants had been levying transaction charges on the beneficial owners when they transferred their securities from one participant to another although no account closure charges were levied. In other words, an investor who was not satisfied with the services of a participant could move his demat account to another participant only at a cost by paying the transaction charges that were being levied by the depositories and their participants. The Board in its wisdom thought that the investors should be freed of this cost. It then issued the impugned circular conveying to the two depositories and all their participants and also to the investors in general its decision that no charges shall be levied by a depository on its participant and consequently the participant shall not levy any charges on a beneficial owner when the latter (beneficial owner) transfers all the securities lying in his account to another participant of the same depository or to another depository. It was made clear that the beneficial owners account with the transferee participant and the transferor participant should be one and the same i.e. the two accounts should be identical in all respects. It was also clarified that in case the account with the transferor participant was a joint account, the account with the transferee participant should also be a joint account in the same sequence of ownerships. The depositories and their participants were advised to put in place necessary systems and procedures to differentiate between an account closure transaction and a normal share transfer transaction before the coming into force of the impugned circular so as to avoid any problems in the live environment and ensure smooth implementation of the aforesaid decision. They were advised to make suitable amendments in their relevant bye-laws, rules and regulations to implement the decision of the Board. It is this circular which is now under challenge.
14. We have heard the learned senior counsel for the appellant and also learned Advocate General on behalf of the Board and are of the view that impugned circular deserves to be upheld. The grievance of the appellant is that it is a company and its Articles and Memorandum of Association permits it to make profits and distribute dividend to its shareholders and that the Board has, without any justification interfered with its functioning, in as much as it has been debarred from levying fee/charges when it is rendering service to the investors who hold demat account with it. It is submitted that when the securities are transferred from one account to another no matter whether the transfer takes place on the sale/purchase of securities or on the closure of an account, a depository and/or its participant render service to the beneficial owner and they are, therefore, entitled to levy transaction charges. According to the learned senior counsel for the appellant the depositories and their participants cannot be required to render such services free. What is contended by the learned Counsel for the appellant is that the electronic systems installed by the appellant and its participants do not distinguish between transfer of securities on the closure of an account and a normal transfer on account of sale/purchase and that in order to implement the impugned circular the appellant and its participants will have to incur heavy expenditure to put in place necessary systems and procedures to differentiate between the aforesaid transfers. We do not find any merit in the arguments advanced on behalf of the appellant.
15. What was happening in the securities market was that when an investor was not satisfied with the service rendered to him by a participant or by a depository and he wanted to switch over to another participant within the same depository or to another depository, he had to pay the transaction fee that was being levied by the depositories and their participants. In other words, for closing his account with a participant or with a depository on account of unsatisfactory service, the investor had to pay the fee that was levied by the depositories or their participants. The Board felt and, in our view rightly, that this was unfair and unreasonable. Why should an investor pay for closing his account with a depository or its participant on account of unsatisfactory service. The result was that an investor had to put up with a particular participant or even with a depository no matter the service rendered to him was unsatisfactory because closing the account meant payment of charges. This discouraged the investors to close their account and transfer their securities to other participants or depositories. It is for this reason, the Board directed the depositories and their participants not to levy any charge when an investor closes his account and transfers his securities to another participant or even to another depository. The object underlying the impugned circular is rather laudable and protects the interests of the investors. It will lead to competition amongst the depositories and their participants which will compete with each other to render better service to their clients (investors) so that they continue to retain their accounts with them. The situation prevailing prior to the issuance of the impugned circular was working to the detriment of the investors. Despite poor service, the investor was discouraged from changing his depository or the participant because he would have to pay for the change. Now when such payments have been done away, the investor will feel encouraged to shift his demat account to another participant of the same depository or even to another depository if he does not get good service. A dissatisfied customer should not be asked to pay for exiting. It does not stand to reason. The argument that the depositories and their participants render service and should be allowed to levy the charge cannot be accepted because the investor is unhappy. We have seen what competition has done in the field of telecom industry. The prices have come down and this is what benefits the consumer. Similarly, competition between the depositories and amongst the hundreds of their participants will mean improved service to the investors. We have, therefore, no hesitation in holding that the impugned circular is for the benefit of the investors and in their interest. No fault can, thus, be found with the decision of the Board directing the depositories and their participants not to levy the transaction charges when the securities are transferred from one participant to another participant or even to another depository.
In view of our findings recorded on the merits of the impugned circular, the appeal fails and the same is dismissed with no order as to costs.