Facts of each case will decide which orders can be appealed against

SD Israni

As investors, we have often felt let down by a listed company or have been taken for a ride because of wrong or misleading information. Every time this happens, we feel the urge to lodge a complaint against the company. In the past, there was little that investors could do to seek redress, since there was no market regulator; and stock exchanges hardly offered any remedy. With the Securities & Exchange Board of India (SEBI) getting its statutory teeth in 1992, investors are no longer helpless and have begun to seek redress by filing complaints with SEBI.

But SEBI receives hundreds of complaints and not all are decided in favour of the investor or to his/her satisfaction. This raises the question of whether an investor can file an appeal against SEBI’s orders. It is pertinent to consider relevant facts and the law on the subject, to answer this question.

The SEBI Act provides that any person aggrieved by an order passed by SEBI may file an appeal before the Securities Appellate Tribunal (SAT). However, before you jump for joy, believing that you can rush to SAT with your appeal, you should know that not every order passed by SEBI can be appealed against.

In other words, every unhappy investor who believes that justice has not been done cannot necessarily file an appeal, unless he/she can show that an appeal is possible. A recent issue that came up before SAT was that of HB Stockholdings Limited vs SEBI, DCM Shriram Industries Ltd, and others. In this case, the appellant, which holds a 24.98% stake, alleged that DCM Shriram, along with its subsidiaries, had committed a fraud on its shareholders by making a preferential allotment of warrants. HB Stockholdings filed a complaint to this effect with SEBI.

HB Stockholdings and other persons acting in concert had made a hostile takeover bid on DCM Shriram in 2008 and, on crossing the relevant shareholding threshold, made a mandatory open offer to acquire another 20% stake to public shareholders of DCM Shriram.

After examining the issue, SEBI rejected HB Stockholding’s complaint and held that there was no breach of the relevant regulations. Feeling aggrieved by the order, HB Stockholdings decided to file an appeal before SAT. SEBI argued in the preliminary hearing before SAT that its order was not ‘appeal-able’ within the meaning of Section 15T of its Act. It cited several cases in support of its claim and also pointed out that the appellant had taken up this issue before the Company Law Board and the Delhi High Court as well. DCM Shriram’s counsel also took a similar stand and sought dismissal of the appeal. On the other hand, HB Stockholdings contended that their rights were affected by the said SEBI order and so it was an appeal-able order.
On 25 April 2012, SAT ruled that the word ‘order’ had not been defined in the SEBI Act. After referring to a legal dictionary and other material, SAT concluded that ‘when a particular direction, request or observation is binding and has penal consequence for its violation, the same will have to be treated as an order’ within the meaning of Section 15T of SEBI Act.

SAT also clarified that the order against which the appeal had been filed was “merely a reply from the Board to the issues raised by the appellant in its complaint.” It further said that orders which are merely procedural cannot be appealed against and it is only those orders or decisions taken by the Board which adversely affect the rights of the parties that will fall within the purview of an appeal-able order under Section 15T of the Act.

The principle this order enunciates is that an investor can file an appeal before SAT only in the case of an appeal-able order. Whether a particular order is an appeal-able order or not will, in turn, depend on the facts of each case.