The Securities And Exchange Board of India (SEBI) will not insist until August 2 the compliance of its show-cause notice issued to proprietary concerns under the SEBI (Intermediaries) Regulations, 2008. The regulations stipulate a ‘fit and proper person’ criteria for intermediaries, and that company directors concerned stand disqualified if a chargesheet is filed against.
SEBI made this statement before the Bombay High Court division bench of Justice Gautam Patel and Justice Neela Gokhale on Thursday. The bench then asked SEBI to file its reply affidavit to petitions challenging the provisions of the regulations by July 28.
HC heard petitions from other firms
The HC was hearing petitions filed by proprietary concerns, including Motilal Oswal Financial Services, Anand Rathi Shares and Stock Brokers, and others, all stating that the regulations are in violation of the principle of natural justice. The petitions contend that the provisions seek to disqualify persons from participating in the securities market merely on the basis of accusations and allegations.
The petitioners expressed apprehension that if they fail to comply with the notice, the regulator will take action against the intermediaries, which are broking companies.
Senior advocate Janak Dwarkas, appearing for Motilal Oswal Financial Services, argued that a chargesheet may lead to disqualification of a person from the intermediary within 15 days, even while the charges are not proven.
Further, if the intermediary fails to comply with that, even that entity would be in violation and may not be termed as ‘fit and proper’, which is a violation of fundamental rights. He further contended that the notification says that any initiation of the winding up process attracts disqualification.
Provisions are imperfect
They further contended that the provisions are “manifestly unreasonable, arbitrary, unfair, forbiddingly excessive, extremely wide in scope and applicability, disproportionate, and create an unreasonable restriction.”
Senior advocate Rafique Dada, appearing for SEBI, justified the regulation and sought time to file reply to the pleas. The bench noted, “We accept senior advocate Dada’s statement that given pendency of matters before this court, SEBI is not presently insisting compliance within 15 days, which is a requirement. All rival contentions are kept expressly open.”
