SEBI to HC: Won't insist on 15 day compliance in 'fit and proper person' rule
Mumbai, July 6, 2023
In a reprieve of sorts to the directors and intermediaries—corporate entities who are stock market brokers in the market—the Securities and Exchange board of India (SEBI) on Thursday informed the Bombay high court that it would not insist on the 15 day compliance period to file reports under its ‘fit and proper person’ criteria under its intermediary regulations. The regulation says if complaints and chargesheets are filed against company directors, promoters or Key Managerial Persons (KMPs) amongst others, they stand disqualified.
The compliance report required is for the intermediary to state whether they have been removed or not and their voting rights are withheld or not.
But a clutch of petitions filed by company directors and brokers, including Motilal Oswal Financial Services Ltd, Anand Rathi Share and stock Brokers, Roongta Corporate Services and others, challenged the constitutional validity of various provisions of clause 6 of the SEBI (Intermediaries) Regulations, and consequent action taken including notice issued on 19 June 2023 intending to take away vested rights of petitioners and impose disabilities and disqualifications on them.
Majority of the petitions filed through TriLegal and Advocate Nitesh Jain and one through DSK Legal, questioned the SEBI provisions.
Senior counsel Amit Desai, representing the petitioners, said the regulation is unconstitutional and violates fundamental rights to equality, life and liberty, trade and private property, as it contemplated “automatic disqualification on a mere filing of a complaint or even mere filing of a chargesheet in economic offences.’’ He said it effectively rendered the disqualification in the hands of the police. He said the ‘fit and proper’ regulation, entails two things -- divestment of shareholding of a promoter with no determination of his innocence or guilt and that the individual is debarred for five years from holding any position in any company (not differentiating at the moment whether it is a listed or a private company).
Senior counsel Janak Dwarkadas for some petitioners took the bench of Justices Gautam Patel and Neela Gokhale through the scheme of the regulation saying it was “extremely harsh’’ and while being applicable to Managing partners, KMPs, promoters and persons holding controlling interest, the fall out is that if the intermediaries canot replace them following a chargesheet, even he (the intermediary) stands to lose his license. The onus is placed on intermediaries and the deadline to short, said Dwarkadas summing up that” the Fit and proper criteria is not limited to only disqualify individuals , but effectively knocks out intermediaries too.’’ He also said such excessive regulation is not there even under other laws, including the Representation of People’s Act.
Senior counsel RA Dada appearing for SEBI said, “I (SEBI) am not conceding anything,’’ But on instructions said, SEBI won’t insist on compliance in 15 days.
The HC adjourned the batch of petitions for further hearing to August 2 and sought a reply from SEBI by then.
[The Times of India]
