Anomalous amendments in Ordinance – how will they affect Consent Orders, past and future?

Recent
Ordinance amending securities laws has been discussed here and here in this
blog. However, one concern arises in respect of the amendment relating to
Consent Orders.

It
may be recollected (as, for example, reported here) that the legal basis of the
Guidelines relating to Consent Orders was questioned before the Delhi High
Court by a PIL. Had this petition been successful, it was possible that the
hundreds of consent orders passed till date would have been set aside. It
appears that to overcome this concern, the Ordinance has introduced, with
retrospective effect from 20^th April 2007, Section 15JB empowering
SEBI to settlement of proceedings. It may be recollected that 20^th
April 2007 was the date of the original Guidelines for Consent Orders.

Interestingly,
the new Section 15JB(2) states that SEBI may agree to a proposal for settlement
on such terms “as may be determined by the Board in accordance with the regulations
made under this Act”.

Section
15JB(3) further reads as follows:-

“The
settlement proceedings under this section shall be conducted in accordance with the
procedure specified in the regulations made under this Act.”.

Needless
to emphasise, no Regulations have been framed till now for settlement
proceedings. Only Guidelines were issued in the form of a
circular (“the Guidelines”).

Have
the lawmakers, in their desire to overcome objections against the legal validity
of the Consent Orders, introduced a fresh concern, even if technical? Would
this mean the earlier Guidelines face this new legal defect of not being
Regulations? And thus the Consent Order passed thereunder face an entirely new
ground for being set aside?

One
hopes that at the time when the Ordinance is finally enacted, this issue is
suitably addressed. It would also be interesting to see how the Regulations, when
issued, are framed.

There
is another angle to this. It may also be recollected that the stated basis of
the Guidelines was Section 15T(2) which read as follows:-

“No
appeal shall lie to the Securities Appellate Tribunal from an order made –

(a) by
the Board on and after the commencement of the Securities Laws (Second
Amendment) Act, 1999;

(b)
by an adjudicating officer,

with
the consent of the parties.”

Now
whether this provision is sufficient legal basis for the Consent Order Guidelines is
a separate question. The point is that this sub-section (2) has now been
omitted by the Ordinance, but with prospective effect. Thus,
from 20^th April 2007, till the date of this Ordinance, two
provisions simultaneously exist in relation to passing of Consent Orders. It is
not clear whether giving prospective effect to omission of this section was
deliberate to retain this provision which was the stated basis of the
Guidelines. If this is the case then, reading the newly introduced Section
15JB, it would appear that the PIL questioning the basis of the Guidelines
would remain alive and of concern. However, this too is not entirely
satisfactory since there would be two provisions dealing with the issue, and
the new one apparently introduced to overcome the earlier possible defect.

And,
apart from how the past issues are finally resolved, yet another concern remains for
Consent Orders from the date of the Ordinance onwards. Since that date, no
Regulations are issued for Consent Orders as Section 15JB requires. Section 15T, which is the stated basis of the Guidelines,  also does not exist anymore now. So the
question is whether SEBI can issue any Consent Orders at all now, till Regulations
for Consent Orders are notified?