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Imposition of costs: A tussle between SAT and SEBI

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Imposition of costs: A tussle between SAT and SEBI

Before the Supreme Court, SEBI recently argued that SAT does not have the jurisdiction and is not empowered to impose costs on SEBI.

The Securities and Exchange Board of India (SEBI) is the capital and commodities market regulator of India. SEBI has been constituted under the SEBI Act, 1992 and possesses wide quasi-legislative, quasi-executive and quasi-judicial powers in relation to the securities markets in India. The Securities Appellate Tribunal (SAT) is an appellate body constituted under the SEBI Act to hear appeals against any order passed by SEBI or its adjudicating officers.

This piece examines legal perspectives insofar as the power to impose costs by SAT on SEBI is concerned.

SEBI v SAT: A “costly” affair

The imposition of costs on SEBI by SAT, with the former immediately rushing to the Supreme Court to challenge the same, is not something unheard of. Almost two decades back, in the matter of Mathew Easow, an investment advisor appearing on CNBC was alleged to have committed unfair trade practices by acting contrary to his recommendation of stocks. In the matter, SEBI imposed a penalty of ₹20 lakh. In the same matter, in a parallel proceeding, SEBI issued a direction to Mathew Easow to cease and desist from giving any recommendation about any investment in the securities market in any public media. On appeal against the penalty order, SAT set aside the order of SEBI and directed SEBI to provide costs of ₹1 lakh to Mathew Easow on the ground that “the damage caused to the reputation of Mathew cannot be undone.” SEBI appealed this order before the Supreme Court, and also challenged the power of SAT to impose costs on SEBI. However, pending litigation, Mathew Easow passed away and the Supreme Court could not get into the question of law as the matter had to be abated. (Disclosure: The author assisted SEBI in the litigation as the then SEBI Legal Officer).

Much water has flown since then. SAT has, while allowing appeals, displayed its dissatisfaction when SEBI did not pass appropriate orders or used its powers under the SEBI Act disproportionately in various cases. SAT has passed adverse orders against SEBI for the callous attitude on the part of SEBI, for passing an order without application of mind , for SEBI’s actions amounting to judicial dishonesty, for passing of harsh and unwarranted orders, and when the course adopted by SEBI in the present case is detrimental to the interests of the securities market.

SAT has in an order even remarked that there is gross negligence on part of various officials of SEBI including the concerned WTM of SEBI” and that the “appellant is made to run around on account of apathy on part of WTM of SEBI”. In another matter, SAT has even imposed unquantified costs on SEBI.

In all of these cases, costs were imposed, except in one case, where SAT considered remanding the matter to SEBI on account of serious abnormalities noticed in the SEBI order.

In another case, a former compliance officer of a company had tendered her resignation and ceased to be in service much before a contentious board meeting. The adjudicating officer of SEBI still imposed a paltry penalty of ₹50,000 rather than providing her the benefit of doubt. The appellant in the case placed a statement of expenditure through a Misc. Application indicating that she has spent a sum of ₹96,710 towards fee and expenses. In such a case, SAT imposed costs of ₹50,000 on SEBI and remarked,

“Considering the fact that the appellant had to undergo this litigation and face harassment for almost 1 and a ½ years, coupled with the fact that a substantial portion was spent towards fee paid to an advocate for drafting the appeal…”

In yet another order, SAT imposed costs of ₹25,000 on SEBI for an error of a recovery officer in construing the whole time member (WTM) order. It was held by SAT that, “it is high time for SEBI to take a fresh look at their officers who are worthy of discharging the duties as RO.”

Statistically, against almost every order where SAT passes adverse observations, SEBI appeals to the Supreme Court where it is represented by the Attorney General for India, the Solicitor General/Additional Solicitor General for India, or other eminent senior counsel. In some of the matters such as Sawaca Business Machines LimitedPalco Metals LimitedGoldman Sachs, SEBI appealed in the Supreme Court against the imposition of costs on itself, but the costs were either set aside as unwarranted, or the respondents (private parties) themselves agreed to not recover the costs from SEBI. To digress a bit, there has always been a demand to have a cost-benefit analysis before SEBI is allowed to appeal almost every adverse judgment before the Supreme Court using public funds.

Statistically, against almost every order where SAT passes adverse observations, SEBI appeals to the Supreme Court.

Statistically, against almost every order where SAT passes adverse observations, SEBI appeals to the Supreme Court.

SAT has even imposed costs on the National Stock Exchange and the Bombay Stock Exchange in multiple orders. In none of these cases has the Supreme Court gone into the question of law to determine the power of SAT to impose costs on SEBI and the limitation, if any, on the same.

But SAT has noted that cogent evidence has to be put forth in order for it to quantify the costs. In MLB Financial Services Limited, the quantum of costs sought by the private party from SEBI was rejected because of insufficient evidence to show the actual amount of cost incurred by them. In this light, SAT calculated and imposed approximate costs of ₹50,000 to be paid by SEBI to the appellants.

In this light, it is interesting to make a note of a recent order in Vital Communications Limited v. SEBI, in which SAT once again imposed costs on SEBI, which immediately rushed to the Supreme Court and obtained a stay. Despite the multitudinous litigation since the first show cause notice, which was issued in 2005, the matter remains sub-judice in the Supreme Court and is listed for final disposal on July 27, 2022. This may be a landmark judgment of the Supreme Court, defining the boundaries of the civil powers of the SAT over SEBI, if the Court decides to delve into the question of law.

Power of SAT to impose costs

Section 15U(2) of the SEBI Act lays out the procedure and powers of the SAT, which has the same powers with respect to certain matters as that of a civil court under the Code of Civil Procedure (CPC). Further, Section 15U lays out that SAT is “not be bound by the procedure laid down by the Code of Civil Procedure, 1908 but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Securities Appellate Tribunal shall have powers to regulate their own procedure…

Proceedings before SAT are deemed to be judicial proceedings and SAT is deemed to be a civil court for all the purposes of Section 195 (Prosecution of contempt of lawful authority of public servants for offences against public justice and for offences relating to documents given in evidence) and Chapter XXVI of Code of Criminal Procedure (CrPC), 1973 (Section 340 to Section 352- Provisions as to offences affecting administration of justice).

Further, Rule 21 of Securities Appellate Tribunal (Procedure) Rules, 2000, as framed and notified by the Government of India, provides the power to SAT to, “make, such orders or give such directions as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice.

SAT has not been expressly empowered by the SEBI Act to impose costs, as Section 15U(2) does not contain any such provision. Ideally, a Tribunal has to be bestowed with powers of imposing costs to prevent unnecessary abuse of its process or to secure the ends of justice. These provisions are wide and may be interpreted to mean that a quasi-judicial authority, in absence of an explicit provision, should be considered to have an inherent jurisdiction to impose costs (and power to expunge remarks).

On another note, SAT has not been expressly conferred with the power of remanding matters. However, the power of remand should flow naturally. Then only would SAT be able to exercise such appellate jurisdiction effectively [Order XLI Rule 23 and Rule 25 of the Code of Civil Procedure, 1908]. The power of remand is an essential power, in case there is an aspect of case which requires to be decided by a lower forum. However, SAT should use its discretion and refer such a matter before making its decision.

Other Tribunals

From an overall perspective such imposition of costs by an appellate tribunal is not uncommon in India. The erstwhile Competition Appellate Tribunal (COMPAT) – now the National Company Law Appellate Tribunal (NCLAT) – that hears appeals against the Competition Commission of India (CCI), or the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) that hears appeals against the Telecom Regulatory Authority of India (TRAI), have also been imposing costs on the respective regulators. Recently, even the Appellate Authority of Chartered Accountants imposed costs of ₹50,000 on the Institute of Chartered Accountants of India (ICAI), in a matter where the Institute was found negligent and casual in the non-compliance of the directions of the former.

Recently, even the Appellate Authority of Chartered Accountants imposed costs of ₹50,000 on the ICAI

Recently, even the Appellate Authority of Chartered Accountants imposed costs of ₹50,000 on the ICAI

In the case of Narayan Avachitrao Deshmukh v. State Bank of India, Nagpura question arose before the Bombay High Court as to whether a Debts Recovery Tribunal has the power to impose costs under Section 19(5) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The High Court, in the said order, set aside the costs and commented upon the ‘practice’ to impose costs in proportion to the claim amount, although it clearly upheld the tribunal’s power to impose costs in suitable cases. Here, it is interesting to note that Section 19(5) of the Recovery of Debts Act is exactly the same as Rule 21 of the SAT Procedure Rules.

Imposition of costs on private parties by SAT

The power of SAT to impose costs, and the limits thereon, is an open question of law to be settled by Supreme Court. It is publicly reported that before the apex court, SEBI recently argued that SAT does not have the jurisdiction and is not empowered to impose costs on SEBI which is a statutory regulator established under SEBI Act.

As and when this issue is taken up, it is important to consider that SAT has not only imposed costs on SEBI, but also on appellants (private individuals/corporates) in certain matters like Chetan S Kothari v. SEBI and Abhey Ram Dahiya v. SEBI. Further, in Pyramid Saimira Theatre Ltd v. SEBI, the costs of ₹1 lakh was imposed on the claimant for vexatious litigation. In the case of Harish Chandra Gutt & Co Pvt Ltd v. Bombay Stock Exchange Ltd, SAT imposed costs of ₹2 lakh, after it found that the appeal lacked merit and the appellant kept seeking undue adjournments with a view to buy time.

Interestingly, SEBI has not filed any cross-appeal in the Supreme Court challenging SAT’s power to impose cost in cases where private parties were saddled with costs. In fact, it is very common for SEBI to ask for costs against private parties before the High Courts as well as the Supreme Court. In the matter of Axes Multi Developers Ltd vs State of West Bengal, the Calcutta High Court directed a company to pay costs of ₹1 lakh to SEBI, which had initiated an investigation following the plea.


Statistically, most of the orders of SEBI are upheld by SAT, and only a fractional percentage is in favour of private parties. According to SEBI’s own annual report for financial year 2020-21, its orders were plainly upheld in about 60% of the appeals. Almost 82% of the appeals disposed off were in favour of SEBI in one way or another (including appeals dismissed, appeals remanded, SEBI orders upheld with modifications and appeals withdrawn). For the financial year 2019-20, 85.3% of the appeals were disposed of in favour of SEBI.

Despite the whopping number of orders passed in favour of SEBI, it blows hot and cold on the extent of SAT’s powers. Even though there is no estoppel against law, in many matters, SEBI itself seeks from SAT an imposition of costs in litigation while praying dismissal of appeals. At the same time, the markets regulator raises concern when costs are imposed on itself. SEBI as a responsible regulator ought not to take such stands.

There is yet another angle to the SEBI v SAT conflict. When SEBI settles administrative and civil proceedings, it directs the parties to pay legal costs. In fact, the SEBI (Settlement Proceedings) Regulations, 2018, which has its origins in Section 15T and Section 15JB of the SEBI Act, allows SEBI to not credit these costs with the Consolidated Fund of India and such amounts remain with SEBI itself. This begs the question as to whether SEBI can provide such a power to itself through its regulation-making power, while on the other hand, contesting the power of SAT on the ground of non-explicit provisions. If SEBI were to be held to have such a power, certainly its appellate body SAT can also have such a power.

Denuding SAT from its power to impose costs on SEBI would take away the balance of SEBI’s wide powers in the legislative scheme. Otherwise, the law would be what George Orwell famously said in Animal Farm: “All animals are equal, but some animals are more equal than others.”