Is SEBI’s consent order system illegal?

Sucheta Dalal

While a group of eminent citizens embarrassed themselves by moving the apex court to quash UK Sinha’s appointment as chairman of the Securities and Exchange Board of India, an ordinary investor seems to have scored a major victory by filing a public interest litigation (PIL). A Delhi-based entrepreneur, Deepak Khosla, has challenged the validity of SEBI’s arbitrary, inconsistent and often whimsical consent proceedings on the basis that it is not backed by statute. The consent system operates under a SEBI circular of 2007 without any statutory backing and the Delhi High Court issued a notice in October to SEBI to respond to the issues raised in the petition. One of these was that the circular does not even revoke the consent when there is a repeat offence. Given that members of the judiciary, including former Chief Justices of the Supreme Court, such as JS Verma, have expressed concern at the way regulatory bodies are discharging their quasi-judicial functions, the litigation may lead to interesting changes. Also, when chairman UK Sinha has himself conducted an internal exercise which showed significant disparity in the treatment of similar offences by different officials, a thorough re-look at the consent mechanism seems well in order. SEBI certainly seems worried, since all consent proceedings have been informally put on hold until the matter is decided one way or another.