Securities Appellate Tribunal reads the Riot Act for judicial indiscipline

In an important reminder to
regulatory agencies to adhere to judicial discipline, the Securities Appellate
Tribunal has passed an order
setting aside an adjudication order passed by the Securities and Exchange Board
of India for ignoring the ratio laid down in another order passed by another
adjudicating officer.  The SAT has
directed that the matter be placed before another adjudicating officer who may
consider the matter afresh.

Explaining the position in law,
the SAT has said this:-

“6. In the present case, the Adjudicating Officer has flatly declined
to consider the order passed by another Adjudicating Officer on ground that such
an order does not have binding effect and that he would prefer to form an
independent view. If every Adjudicating Officer of SEBI passes independent
order without bothering to consider
decision taken by another Adjudicating Officer of SEBI in similar set of circumstances,
then there would be complete chaos and total lawlessness. SEBI being
market regulator of the securities market, Adjudicating Officers’ of SEBI cannot afford to pass adjudication
orders in each case depending upon the whims and fancies of each Adjudicating
Officer. Unless facts and circumstances set out in an order passed by
Adjudicating Officer are materially different from the facts and circumstances
of the case in hand, it would be just and proper for the Adjudicating Officer
to follow the earlier order so that there is uniformity in the quasi judicial orders
passed by the Adjudicating Officers’ of SEBI.

7. In the present case, since the
Adjudicating Officer of SEBI has committed impropriety of refusing to consider
the decision of another Adjudicating Officer which according to the Appellant
has direct bearing on the facts of present case, without going into the merits
of the case we set aside the impugned order and direct SEBI to pass fresh order
by entrusting the matter to any Adjudicating Officer other than the
Adjudicating Officer who has passed the impugned order.”

[Emphasis Supplied]

The Adjudicating Officer had said
the following in his order:-

“17. I
note that the Noticee has relied upon order dated November 27, 2013 passed by
an Adjudicating Officer. In this regard, I note that the decision of another Adjudicating
Order may not have any binding effect on me and I would, rather, prefer to form
an independent view considering the merits of the matter. Therefore, I have
not considered the same while arriving at any conclusion in the facts and
circumstances of the instant case before me.”

[Emphasis Supplied]

The SAT order is important
considering that approach adopted by SEBI in this case is not an extraordinarily
alien practice.  In this case, the
Adjudicating Officer explicitly stated his position to walk his own path refusing to even consider what SEBI had already said in a precedent.  In other instances, without explicitly stating
so, orders get passed disregarding and ignoring ratios laid down by the very
same organisation, and worse, even ignoring ratios laid down by appellate
bodies.  There are many appeals piled up
in the Supreme Court and the SAT on the (wrong) premise that SEBI has
not agreed with the SAT’s view and has preferred an appeal in the Supreme Court – despite the
Supreme Court not having stayed the SAT Order. 
A classic example is of the ratio that merely because a manipulative
trade has taken place on the market, the broker whose client executed it does
not automatically become complicit in the violation.  Multiple orders have been passed ignoring this ratio, and they are all piled up in appeal.

SEBI is not alone in this
regard. Tax authorities are known to have catalyzed the chaotic and lawless
circumstances that SAT warns about.  All
quasi-judicial and regulatory authorities would do well to read the Supreme
Court’s ruling in the case of Union Of
India And Others vs. Kamlakshi Finance Corporation [AIR 1992 SC 71].  Similarly warning about chaos, the Supreme Court said this:-

“6. Sri Reddy is perhaps right in saying that the officers were not actuated by any
mala fides in passing the impugned orders. They perhaps genuinely felt that the
claim of the assessee was not tenable and that, if it was accepted, the Revenue
would suffer. But what Sri Reddy overlooks is that we are not concerned
here with the correctness or otherwise of their conclusion or of any factual
malafides but with the fact that the
officers, in reaching in their conclusion, by-passed two appellate orders in
regard to the same issue which were placed before them, one of the Collector
(Appeals) and the other of the Tribunal. The High Court has, in our
view, rightly criticised this conduct
of the Assistant Collectors and the harassment to the assessee caused by the
failure of these officers to give effect to the orders of authorities higher to
them in the appellate hierarchy. It cannot be too vehemently emphasised
that it is of utmost importance that, in disposing of the quasi-judicial issues
before them, revenue officers are bound by the decisions of the appellate
authorities; The order of the Appellate Collector is binding on the Assistant
Collectors working within his jurisdiction and the order of the Tribunal is
binding upon the Assistant Collectors and the Appellate Collectors who function
under the jurisdiction of the Tribunal. The principles of judicial discipline
require that the orders of the higher appellate authorities should be followed
unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not
“acceptable” to the department – in itself an objectionable phrase –
and is the subject matter of an appeal can furnish no ground for not following
it unless its operation has been suspended by a competent court. If this healthy
rule is not followed, the result will only be undue harassment to assessees and
chaos in administration of tax laws.”

[Emphasis Supplied]