SAT: Powers of SEBI vis-a-vis the Companies Act

Securities and Exchange Board of India (SEBI) is empowered under section 55A of the Companies Act to administer certain provisions of the Companies Act as far as they, inter alia, relate to issue and transfer of securities. These provisions which SEBI administers cover a major aspect of public offering and transfer of securities in India so far as they are contained under the Companies Act. However, there might still be certain provisions of the Companies Act or some other legislation that touch upon public offering of securities in India but for which SEBI has not been empowered to act upon. Hence the question that often arises is how SEBI should act in such cases.

The answer to the question is found in sections 11 and 11B of the Securities and Exchange Board of India Act (SEBI Act). The functions of SEBI have been provided under section 11 of the SEBI Act which consists of general and specific set of functions. The Securities and Appellate Tribunal in Bank of Baroda v. Securities and Exchange Board of India has held that the duty and function of SEBI is contained in Section 11. It has been entrusted to take such measures as it thinks fit and in order to discharge this duty, the power is vested under section 11B. Thus section 11B is one of the executive measures available to SEBI to enforce its prime duty of investor protection. The Delhi High Court in M.Z. Khan v. SEBI, AIR 1999 Delhi 164 held that the power of the SEBI under section 11 and 11B is of a very wide nature and not hedged by any restriction. Similarly, the Bombay High Court in Ramrakh R. Bohra v. SEBI, [1999] 96 CompCas 623 (Bom) has endorsed such an approach and held that section 11B being an enabling provision must be construed so as to subserve the purpose for which it is enacted.

Thus SEBI can act under sections 11 and 11B, which are of a very wide nature as it speaks of investor protection, irrespective of the fact that the subject matter might also be covered under the Companies Act for which some other authority has been empowered to act. Overlapping of powers is not legally impermissible. The Supreme Court in Radhe Shyam Khemka v. State of Bihar, (1993) 3 SCC 54 found no problem with proceedings initiated under the Penal Code, where proceedings could also have been initiated under the Companies Act. However, power under sections 11 and 11B will have to be exercised independently of the provisions of the Companies Act.

In this context, another section to look at is section 32 of the SEBI Act which states that the provisions of the SEBI Act shall be in addition to and not in derogation of the provisions of other laws. This provision curtails the power of SEBI and in the event of a conflict between the provisions of an existing legislation and the SEBI Act, the provisions in the existing statute will prevail over the provisions of the SEBI Act. In other words, the provisions of the SEBI Act in its application will be only supplemental to the provisions of other existing legislations. The section does not empower SEBI to supplement the provisions of any other law, but refers only to the extent of operation of the provisions of the SEBI Act vis-a-vis the provisions of other statutes.