HC notice to Union govt on challenge to Sebi ordinance

The high court here has issued notices to the Union government on a public interest suit seeking to strike down the re-promulgated ordinance giving extra powers to the Securities and Exchange Board of India (Sebi) to crack down on illicit money collection schemes.

A city-based lawyer, Prashaanth Balasubramaniam, has contended the ordinance’s provisions are “utter violation of constitutional principles”.

The court has directed Sebi and the Union ministries of law and corporate affairs to respond to the petition within three weeks.

The ordinance was promulgated in July last year; it is yet to be replaced by a legislation. It was re-promulgated in September and then in March this year. An official Bill to convert its provisions into law was tabled in the Lok Sabha in March; it is scheduled for passage in Parliament’s session to begin next month. Sebi’s board meets in Delhi later this week to discuss finer details of the Bill.

The ordinance gives Sebi power to search any building, vessel or aircraft or break open the lock of any door or safe to accomplish the objectives (of coming down on any money collection scheme which had mobilised more than Rs 100 crore). It also gives the market regulator powers akin to the income tax department, to attach properties and disgorge ill-gotten gains.

The petitioner, apart from contesting such provisions, has also argued that promulgation of an ordinance is supposed to be only done when “immediate action is of the necessity” and this condition does not exist. The petition also asks the HC to look into the power of the President to re-promulgate an ordinance.

As for some of the provisions, says the petition, these go beyond the legislative mandate. “The fact that these powers are extended to any aircraft or vessel, not necessarily limited to Indian vessels, would mean foreign vessels are open to being searched. This is not only a violation of the sovereignty of nations but beyond the mandate of the legislature,” it states.

Sebi says the new powers gained from the ordinance have enabled it to initiate a little over 300 attachment proceedings in about 60 cases, to recover about Rs 2,000 crore from violators.

Defenders of the ordinance say the Bill giving Sebi more powers is necessary, especially from the point of view of cracking down on ponzi schemes, which operate in a regulatory grey area.