Referring to Section 19 of the SEBI Act which states that, all powers and functions of the Board (except the rule making power under Section 29) can be delegated to any member, officer or any other person, the Kerala High Court rejected the petition challenging the delegation order, to the extent it permits delegation of quasi-judicial functions to an employee/officer of the second Respondent (SEBI).

A Single Judge Bench of Justice V.G Arun therefore observed that “Due to enormous rise in the nature of activities to be handled by the statutory authorities, the maxim 'delegatus non potest delegare' can no longer be applied blindly”.

Senior Advocate E.K Nandakumar appeared for the Petitioner, whereas CGC S. Vaidyanathan appeared for the Respondent.

Going by the background of the case, the Petitioner, an unlisted public limited company registered with the RBI as a NBFC and carrying on the business of asset financing, was served with a show cause notice issued by the second Respondent alleging violation of provisions of the Companies Act, 1956, SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and SEBI (Disclosure and Investor Protection) Guidelines, in the issuance of debentures and bonds during the period 2003 to 2017. Refuting the allegations and asserting that it has not contravened any statutory provision, regulations or guidelines, the Petitioner requested for a personal hearing. Since the personal hearing before the Whole Time Member of the Board as well as the Chief General Manager was adjourned, hence, present petition.

After considering the submission, the Bench observed that the fact that the functions under Sections 11(1), 11(4), 11(4A), 11B, 11D of the SEBI Act are quasi-judicial in nature being irrefragable, the question arising for consideration is whether those functions can be delegated to an officer, since the requirement is of the Board itself exercising that function.

Referring to the decision of Supreme Court in Saurashitra Kutch Stock Exchange Ltd v. SEBI and another [2012 (13) SCC 501], the Bench observed that the delegation of quasi-judicial power to whole-time member having been approved, the challenge against delegation of powers to the Chief General Manager/ Executive Director brought in by way of amendment dated July 25, 2022 cannot be interfered with.

The High Court therefore elucidated that the fact that members of the Board are appointed/nominated by the Central Government and Reserve Bank, while the officers are appointed by the Board will not render the delegation bad.

The Bench therefore concluded that the wide power to delegate statutory and administrative functions gets restricted when it comes to quasi-judicial functions and is almost non-existent in the case of judicial functions.

Accordingly, the Bench dismissed the petition.

Cause Title: BRD SECURITIES LTD v. UOI and SEBI

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Kerala High CourtJustice E.K NandakumarSEBI Regulations

Pankaj Bajpai