MUMBAI
Appeal No. 387/2004
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Date of Hearing
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19.7.2005
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Date of Decision
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26.7.2005
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In the matter of:
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Janata Sahakari Bank Ltd.
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Appellant – Represented by
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Mr. Chinmoy Kaladkar, Advocate
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Versus
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Securities & Exchange Board
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Respondent –Represented by
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of India
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Mr. Ravi Hegde, Advocate
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Coram:
Justice Kumar Rajaratnam, Presiding Officer
C. Bhattacharya, Member
R. N. Bhardwaj, Member
Per: Justice Kumar Rajaratnam, Presiding Officer
1. Appeal is taken up with consent of parties.
2. The appellant is a State Cooperative Bank and challenges an order of the respondent dated 15.10.2004 under Section 11, 11(D) of the SEBI Act asking the appellant to cease and desist from repeating the lapses enumerated in the impugned order.
3. The facts very briefly are as follows: An inspection of books of accounts of the appellant undertaken by SEBI during October-November 2002 resulted in the observance of following violations, deficiencies and lapses of the appellant
a. Account opening – Opening of beneficiary accounts despite SEBI’s direction not to open any new accounts & without obtaining proper address proof & proof of identity. – improper and incomplete documentation – improper account holding patterns
b. improper issuance and execution of delivery instruction slip (DIS)
c. Delay in dispatch of dematerialization requests
d. Mismanagement in handling investor grievances
e. Erroneous transfer
4. The observation and irregularities were communicated to the appellant vide letter dated 14.1.2003. The appellant replied on 31.1.2003. A show cause notice was issued after considering the reply as to why ‘cease and desist’ proceedings should not be initiated against the appellants for the lapses and irregularities observed during inspection.
5. It was observed that:
a) the appellant had accepted in their letter that they had opened beneficiary accounts without obtaining proper identity proof, address proof.
b) the appellant had accepted that they had opened beneficiary accounts with improper and incomplete documentation like absence of sign., accepting documents without verification etc.
c) the prescribed procedure of issuance and execution of DIS to NSDL and CDSL by SEBI were intimated vide letter dated 6.6.2000 to the appellant, but the appellant started following the same only in August 2002.
6. The appellant sought an opportunity for a personal hearing and stated that procedure lapses were immediately attended and complied within time. A personal hearing was afforded to them on 11.2.2004. The appellant requested for an adjournment and the hearing was scheduled for 16.3.2004. The appellant made its submissions to SEBI on 16.3.2004.
7. This appeal need not detain us for too long. The order appears to us to be a benign order asking the bank to set its house in order and cannot by any stretch of imagination be called an order that would lead to adjudication proceedings or prosecution. This view was also expressed by the learned counsel for the respondent.
8. We place on record the fair submission of the counsel for the respondent. As laid down by number of pronouncements of the Supreme Court the job of the Regulator in a Court is to assist the Court in arriving at a just equitable result and not arguing for the sake of arguments emboldened by legal semantics and jugglery, as is done very often in this Tribunal. (see DB judgement of the High Court of Karnataka in MFA 4795/2002 dated 8th April 2004)
9. The role of a Regulator before the Tribunal has been set out in the Clariant International Ltd. & Anr. vs. SEBI reported in (2004) 62 CLA 96 (SC). We commend that a copy of this judgement be circulated to the counsel for SEBI as the judgement is poignant and conveys a strong message which we must all follow. The relevant portion of the order is extracted below:
“73. 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.
74. Our Constitution although it does not incorporate the doctrine of separation of powers in its full rigour, does make horizontal division of powers between the Legislature, Executive and Judiciary. See Rai Sahib Ram Jawaya Kapur v. State of Punjab AIR 1955 SC 549.
75. 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. In Cellular Operators Association of India v. Union of India [2003] 3 SCC 186 this Court observed:
“27. TDSAT was required to exercise its jurisdiction in terms of section 14A of the Act. TDSAT itself is an expert body and its jurisdiction is wide having regard to sub-section (7) of section 14A thereof. Its jurisdiction extends to examining the legality, propriety or correctness of a direction/order or decision of the authority in terms of sub-section (2) of section 14 as also the dispute made in an application under sub-section (1) thereof. The approach of the learned TDSAT, being on the premise that its jurisdiction is limited or akin to the power of judicial review is, therefore, wholly unsustainable. The extent of jurisdiction of a Court or a Tribunal depends upon the relevant statute. TDSAT is a creature of a statute. Its jurisdiction is also conferred by a statute. The purpose of creation of TDSAT has expressly been stated by the Parliament in the Amending Act of 2000. TDSAT, thus, failed to take into consideration the amplitude of its jurisdiction and thus misdirected itself in law.”
76. The court noticed the celebrated book on Judicial Review of Administrative Law by H.W.R. Wade and C.F. Forsyth and held:
“The rule as regard deference to expert bodies applies only in respect of a reviewing court and not to an expert tribunal. It may not be the function of a court exercising power of judicial review to act as a super-model as has been stated in Administrative Law by Bernard Schwartz, 3rd edition in para 10.1 at page 625; but the same would not be a case where an expert tribunal has been constituted only with a view to determine the correctness of an order passed by another expert body. The remedy under section 14 of the Act is not a supervisory one. TDSAT’s jurisdiction is not akin to a court issuing a writ of certiorari. The Tribunal although is not a court, it has all the trappings of a Court. Its functions are judicial.
In “Jurisdiction and Illegality” by Amnon Rubinstein, a judicial power in contrast to the reviewing power is stated thus :
‘A judicial power, on the other hand, denotes a process in which ascertainable legal rules are applied and which, therefore, is subject to an objectively correct solution. But that, as will be seen, does not mean that the repository of such a power is under an enforceable duty to arrive at that solution. The legal rules applied are capable of various interpretations and the repository of power, using his own reasoning faculties, may deviate from that solution which the law regards as the objectively correct one.’
The regulatory bodies exercise wide jurisdiction. They lay down the law. They may prosecute. They may punish. Intrinsically, they act like an internal audit. They may fix the price, they may fix the area of operation and so on and so forth. While doing so, they may, as in the present case, interfere with the existing rights of the licensees.”
(Emphasis by Court)
10. In that view of the matter, no interference is called for. The appeal is disposed of accordingly. No order as to costs.
Justice Kumar Rajaratnam
Presiding Officer
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R.N. Bhardwaj
Member
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C. Bhattacharya
Member
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Place: Mumbai
Date: 26.7.2005
//SR70525