SEBI vs Justice: When the Regulator Gets Regulated

New Delhi, June 23, 2025 (ABC Live) SEBI Vs Justice: As India’s capital markets grow in scale and sophistication, the Securities and Exchange Board of India (SEBI)—armed with expansive powers under the SEBI Act, 1992—has emerged as a key pillar of financial regulation. However, past judicial pronouncements cast a critical light on the regulator’s unchecked

New Delhi, June 23, 2025 (ABC Live) SEBI Vs Justice: As India’s capital markets grow in scale and sophistication, the Securities and Exchange Board of India (SEBI)—armed with expansive powers under the SEBI Act, 1992—has emerged as a key pillar of financial regulation. However, past judicial pronouncements cast a critical light on the regulator’s unchecked authority, procedural conduct, and constitutional accountability.

? Concentration of Power under Scrutiny

SEBI combines rule-making, investigative, and enforcement powers under one roof—an institutional structure rarely seen in Indian regulatory agencies.

Under Section 11, SEBI can regulate all intermediaries, issue binding directions, and suspend trading.

?? **Case Law: Clariant International Ltd. v. SEBI (2004) 8 SCC 524**

The Supreme Court emphasised that SEBI must act fairly and transparently, even while protecting investors. The Court ruled that procedural safeguards, such as proper hearing and speaking orders, are non-negotiable, especially when SEBI exercises its quasi-judicial powers.

?? Penal Powers: “Proportionality” and “Natural Justice”

SEBI can impose penalties under Chapter VIA of the Act without formal court trials. While this expedites enforcement, it also risks bypassing due process.

Sections 15A to 15HA empower SEBI to impose monetary penalties up to ?1 crore for regulatory violations.

?? **Case Law: Sahara India Real Estate Corp. Ltd. v. SEBI (2013) 1 SCC 1**

In the high-profile Sahara case, the Supreme Court backed SEBI’s power to act against unauthorised collective investment schemes. However, it also insisted that any suppression of facts in fundraising must be proven through a rigorous procedure.

? Investigative Overreach: Unfettered Powers?

Section 11C allows SEBI to investigate any entity associated with securities, with powers similar to a civil court, including search, seizure, and examination on oath.

?? **Case Law: Price Waterhouse v. SEBI (2010 SAT)**

The Securities Appellate Tribunal (SAT) held that SEBI must demonstrate the necessity for using invasive powers like document seizure and not act on mere suspicion. Arbitrary invocation of Section 11C was declared ultra vires the principles of natural justice.

? Failure in Retail Investor Redressal

Despite Section 15C empowering SEBI to penalise listed companies and intermediaries that fail to resolve investor complaints, delays remain systemic.

?? **Case Law: Rakesh Agarwal v. SEBI (2003 SAT)**

SEBI was criticised for failing to act promptly on insider trading allegations. SAT reminded SEBI that “delayed regulation is a form of dereliction,” indirectly reinforcing the importance of time-bound action in investor protection.

? Autonomy vs Accountability

SEBI’s top functionaries are government appointees (Sections 4–6), raising concerns about independence. Section 17 allows the Central Government to supersede the Board, a power that, while rarely used, remains controversial.

?? **Case Law: DCM Financial Services Ltd. v. SEBI (2004 SAT)**

SEBI decision to bar a broker was overturned for non-application of mind and lack of evidence. SAT reaffirmed that SEBI is not above judicial review, and its actions must pass the test of reasonableness and proportionality.

? Modern Market, Outdated Framework?

Though the SEBI Act allows information-sharing with foreign regulators (Section 11(2)(ib)), emerging areas like crypto-assets, AI-driven trading, and cross-border IPOs remain outside SEBI’s robust jurisdiction. Regulatory catch-up is overdue.

? Conclusion: Strong Teeth, But Where’s the Watchdog?

SEBI remains essential for market integrity. But as case laws show, its unchecked powers often walk a fine line between regulation and coercion. There is a growing consensus among legal and policy experts for: