Securities Law

SEBI Proposes Pre-Deposit Appeals: What About Access to Justice?

In an attempt to tackle frivolous appeals, the Securities and Exchange Board of India (“SEBI”) has proposed the introduction of a mandatory deposit of 10% of the penalty imposed by it, before an appeal from its orders/directions can be sought before the Securities Appellate Tribunal (“SAT”). This requirement would also stand, mutatis mutandis, in cases where SEBI has ordered for refunds, recovery, disgorgement or compounding against an entity.

In this article, the author explores the jurisprudence behind “pre-deposit appeals”, its interplay with the fundamental right to access of justice, and its propriety, when applied to the peculiar jurisdictional realities of SEBI.

 

What is a Pre-Deposit Appeal?

A pre-deposit appeal is a condition imposed on the Appellant to deposit a portion of the penalty/levy charged on him before an appeal from an order of a Court, Tribunal or Authority can lie before the Appellate Court/Tribunal. It is a threshold limitation restricting the exercise of the right to appeal where it is felt that a certain kind of appeal is generally associated with frivolity/evasion or where the interest of the opposite party of the Appellant ought to be protected.  Beyond this, a pre-deposit appeal promotes adherence to the letter of the law.

 

The Indian Context

An appeal is a creature of the statute. It is not a right born out of principals of natural justice, equity or otherwise doesn’t inhere in the aggrieved party.[1] A pre-deposit allows the legislature to make the exercise of the right to appeal conditional as long as such conditions are not so onerous as to amount to unreasonable restrictions rendering the right almost illusory.[2]

Pre-deposit appeals are not new to Indian jurisprudence. They have long existed in numerous penal and regulatory provisions. While it is not surprising that the vires of these provisions have been challenged many a time, they have largely been upheld by the Apex Court and the High Courts, for example, in the following cases and for the following reasons:

 

Statute Provision Case Law
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests, 2002 Second Proviso to Section 18(1) National Polymers and Ors. Vs. Union of India and Ors.
The Central Excise Act, 1944 Section 35F Satya Nand Jha Vs. Union of India
The Customs Act, 1962 Section 129E Haresh Nagindas Vora Vs. Union of India

Reasons:

  • An appeal is a creature of the statute and not an inherent or common law right. As such, the legislature, in its wisdom, is empowered to conditionalize its operation. As long as conditions imposed on the right to appeal are not so onerous as to evade the usage of such right in the first place, the power of the legislature in this regard cannot be challenged.
  • A reasonably meagre pre-deposit amount of around 10% of the penalty/levy has largely been held to be a reasonable pre-condition placed upon the statutory right to appeal.
  • Several other conditions like the power of waiver and timely refund, in the hands of the adjudicating authority help in meeting the needs and interests of justice, as and when the need arises.

 

Access to Justice, a Fundamental Right

For the people of India, Article 21 of the Constitution is the gift that keeps on giving. And so it gave again in the case of Anita Kushwaha Vs. Pushap Sudan where the Hon’ble Supreme court had held that the fundamental right to life and liberty under Article 21 inheres in itself, the right of access to justice. This right is of wide amplitude and includes the right to access a judicial forum and effective justice. It cannot be ignored in the present analysis that a pre-deposit appeal, while aimed at targeting frivolous appeals, has the effect of targeting the financially constrained Appellants, adding over the substantial costs of litigation, travel, filings, etc. thus, acting as a real bar in the access to justice for them. Access to justice, in addition to the peculiarities of SEBI’s regulatory regime, highlighted below, must be considered by SEBI in instituting a pre-deposit provision for appeals.

 

Peculiarity of SEBI’s Jurisdiction

SEBI’s proposal for a pre-deposit appeal cannot be looked at in isolation. It has to be looked at in view of the peculiar nature of its regulatory regime. Firstly, SEBI’s regulatory regime is based out of Mumbai, which means that the parties that face proceedings before its Headquarters in Mumbai, in most cases, are forced to take up the matter in Mumbai itself, wherever they themselves may be based. While SEBI does provide various facilities like video-conference meetings, transfer of proceedings, written/digital correspondences, etc., they are largely limited exceptions to the rule, arguable in both their effectivity and practicality and not to mention sparsely available/applicable. Secondly, in terms of an appeal, Appellants outside of Maharashtra face substantial prejudice as statutory appeals from SEBI’s orders/directions can solely be preferred before the SAT in Mumbai. This results in mounting legal costs, challenges of dealing with unreliable/unknown pleaders, cost of travel, etc. This peculiarity in SEBI’s jurisdiction leads to compounding hardships for parties faced with SEBI proceedings throughout the country. This ought to be kept in mind in setting up a pre-deposit appeal or extent thereof.

 

Important Conditions in a Pre-Deposit Appeal

A perusal of the above-mentioned case law on the matter leads to a clear view of the best practices for pre-deposit appeals. These are:

  1. SAT must have the discretion to waive off the requirement of a pre-deposit, partly or wholly, looking to the prima facie view of the case or the conditions of the Appellant;
  2. If the waiver application is rejected, SAT ought to give a reasoned decision for such refusal;
  3. The option of waiver for the pre-deposit amount should be available at any stage of the proceedings and if SAT feels it to be just and fair, to order for the refund of the pre-deposit amount, with interest;
  4. The pre-deposit sum must be refunded after the Appeal is concluded or when the provision must be certain and expedient;
  5. Dual rates for pre-deposit should be considered, the higher one for serious offences/violations of securities laws and the lower one for less serious/technical violations of securities laws.
  6. The pre-deposit for the second appeal must include the amount of pre-deposit from the first appeal.

 

Conclusion

While the legislature has complete right to enshrine a pre-deposit for appeals, the abovementioned considerations of access to justice must be kept in mind. The answer lies in a balanced approach to pre-deposit appeals that create a functional control over frivolous appeals while not doing away with the interests of justice completely. Therefore, SEBI ought to drive its pre-deposit regime in light of settled best practices on the subject and in the overall interest of the securities market and its constituents.

 


Endnotes: 

[1] Seth Nandlal Vs. State of Haryana, 1980 (Supp.) SCC p.574.

[2] Ibid.

Siddharth is the Founder of CorpLexia and serves as its Editor. He is a student of BBA LL.B (Hons.) and has a special focus on corporate, commercial, insolvency, arbitration, securities and competition laws. He can be reached at siddharth@corplexia.com

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