The market regulator does not have the power to constitute a panel or delegate its function to it.

Under section 30 of the Securities and Exchange Board of India Act, 1992, SEBI has the power to make regulations consistent with the Act and rules made thereunder to carry out the purposes laid down. Section 30(2) provides the cases under which such regulations can be made.

In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters: — (a) the time and place of meetings of the board and the procedure to be followed at such meetings under sub-section (1) of section 7 including the quorum necessary for transaction of business; (b) the terms and other conditions of service of officers and employees of the board under sub-section(2) of section 9; (c) matters relating to issue of capital, transfer of securities and others incidental thereto and the manner in which these shall be disclosed by the companies under section 11A; and (d) the conditions under which the certificate of registration is to be issued, the amount of fee to be paid for the certificate of registration and the manner of suspension or cancellation of the certificate of registration under section 12.

Under SEBI (Substantial Acquisition of Shares And Takeovers) Regulations, 1997, regulation 4(1) provides for the constitution of a panel of a majority of independent persons from within the categories mentioned in sub-section (5) of Section (4) of the SEBI Act.

On receiving an application from an acquirer under regulation 4(2) for exemption under Chapter III of the regulations providing for takeover and offer to the shareholders, the board will refer such an application to the panel constituted under regulation 4(1) within five days of the receipt of the application and the panel is required to make its recommendations to the board within 15 days of receipt of the application. Thereafter, the board after considering all the relevant facts, including recommendations of the panel, has to pass a reasoned order in respect of the applications received.

The constitution of the take-over panel as now announced and assigning it the function to consider applications for making their recommendations appear to be beyond the scope of SEBI under the Act. Regulation 4 provides that the board can constitute a panel consisting of a majority of ``independent persons'' within the category mentioned in sub-section (5) of section 4 of the Act.

Section 4 of the Act relates to constitution of the SEBI board. It says that the board shall consist of the following members, viz, (a) a chairman, (b) two members from amongst officials of the Ministries of the Central Government dealing with Finance and Law, (c) one member from amongst the officials of the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934), (d) two other members to be appointed by the Central Government.

The general superintendence, direction and management of the affairs of the board shall vest in a board of members, which may exercise all powers and do all acts and things which may be exercised or done by the board. Save as otherwise determined by regulations, the chairman shall also have powers of general superintendence and direction of the affairs of the board and may also exercise all powers and do all acts and things which may be exercised or done by the board.

The chairman and members referred to in clauses (a) and (d) shall be appointed by the Central Government and the members referred to in clauses (b) and (c) of that sub-section shall be nominated by the Central Government and the Reserve Bank respectively. The chairman and the other members referred to in clauses (a) and (d) of sub-section (1) shall be persons of ability, integrity and standing who have shown capacity in dealing with problems relating to the securities market or have special knowledge or experience of law, finance, economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall be useful to the board.

Sub-section (5) of section 4 of the SEBI Act makes the same provision about all members of the board. Section 2(1)(e) defines a member as a member of the board and includes the chairman among members. Members can be appointed by and removed by the Central Government. The functions of the board are outlined in Section 11 of the SEBI Act and Section 11(2)(h) provides that the board can lay down measures for regulating substantial acquisition of shares and takeover of companies. Under the said section, it is the function of the board to regulate acquisition of shares and takeover of companies. The SEBI Act does not confer any power on the board to appoint any panel or delegate its powers to any other person or authority.

Regulation 4, therefore, is inconsistent with the provisions of the Act. What this provides is that the board can constitute a panel of a majority of `independent persons' from within the category of sub-section (5) of Section 4 of the Act, viz, from within the members of the board, to consider an application received for acquisition and consider the recommendations of this body whilst disposing of the application for exemption from Chapter III of the regulations. It does not empower the board to constitute a panel of persons from outside the members of the board as has now been constituted.

The word ``independent person'' has not been defined. Government employees have been held by judiciary decisions to be independent persons. Regulation 4, therefore, means that amongst the composition of the board members, SEBI can select a majority of the persons constituting a panel to consider the applications received for exemption under Chapter III and make the recommendations which will then be considered by the entire board. It confers no powers on the board to appoint persons other than the members of the SEBI constituted by the Central Government for purposes of management of the SEBI. Further, the Act does not envisage SEBI delegating its functions under the Act to anybody or persons outside the members of the board. Such conferment of delegation is against law. The powers to regulate the takeover of companies is one of the functions of the board and the board cannot delegate its functions to any other agency -- even to make recommendations.

In the case of Benoari Lal Sarma and others vs. Emperor, a special bench of the Calcutta High Court (AIR (30) 1943 Calcutta (285) had laid down: ``It is a function which involves the exercise of one's deliberative faculties and faculties of judgment and discretion. Where the performance of such a function is entrusted by Parliament to anyone, he must discharge it himself; he cannot, unless expressly permitted to do so by Parliament, delegate this function to anyone else. The doctrine delegata potestas non potest delegari (a delegated power cannot be delegated) is one, which is usually applied in cases arising out of contract, but the principle of that doctrine is one of universal application and would apply in this case.''

The author is wholetime Director, Kothari Industrial Corporation Limited, Chennai.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.