The verdict was in response to a writ filed by Alka Synthetics challenging the market regulator's diktat in the Magan Industries' price-rigging case.

Sections 11 and 11B give wide ranging powers to Sebi to issue directions and the exercise of these powers by the regulator, including its action in the Hindustan Lever insider-trading case, where it has ordered the company to compensate Unit Trust of India, has been challenged before courts.

While in the insider-trading case, the Mumbai high court has only stayed certain observations made by the appellate authority regarding the powers of Sebi, pending final hearing in the matter, another bench of the court, has in its interim order in the casepertaining to Sebi's action of brokers, held that the securities watchdog has the powers to issue wide-ranging directions under Section 11. The Delhi high court too has upheld Sebi's powers under this section in a recent verdict on a takeover case.

In the recent case, Sebi had charged Alka Synthetics and some other entities with having rigged prices of Magan Industries scrip. The shares which had been cornered had allegedly been rigged ahead of the auction. And at the auction, the shares were offered by these entities at much higher prices.

Realising the manipulation, Sebi had directed the stock exchange concerned to impound the auction proceeds totalling Rs 10 crore. They were given the standard price and the "ill gotten" gain was impounded.

Sebi also set up a committee to hear these investor's grievances. However, Alka Synthetics moved the Gujarat high court against the Sebi order. The contention was that the market regulator has no powers to impound auction proceeds and that this action deprived thepetitioner of his right to property in violation of Section 300 (A) of the constitution and was thus against the natural principles of justice. The single judge who heard the appeal ruled in favour of Alka Synthetics and stayed the Sebi order.

Sebi then went in appeal before the division bench of the high court. Former finance minister and noted lawyer P Chidambaram argued the matter on behalf of Sebi and the bench, after concluding the final hearings, had reserved its order. The order was pronounced before the court on Tuesday.

Meanwhile, Rupangi Impex, another case of price manipulation where monies had been impounded also found its way to Gujarat high court which decided to hear both the cases simultaneously.

The bench has held that Sebi was within its rights to issue directions to impound the auction proceeds and that this did not amount to deprivation of property and, hence, did not violate Section 300 (A) of the constitution.

However, in case of Rupangi Impex, the bench has also directed Sebi toset up a committee on the lines of the one set up in the Magan Industries to hear out the grievances of investors who have been affected by the Sebi order.

The basic contention of the petitioner was that the unfair trade practice regulations under which Sebi took the action did not list impounding of shares as an action which the market regulator could take.

Sebi's argument was that the act which provides for issuing any direction overrides the regulations as these flow from the act. Moreover, the regulations were framed in 1992, but Section 11 had been incorporated in the Sebi Act in 1995.

"The order is extremely significant for us as the powers of Sebi to issue directions under Section 11 to safegurad interests of investors is being challenged in several cases. The Mumbai high court and the Delhi high court have already upheld our powers in the brokers' price rigging matter and a takeover case, respectively. What is even more significant is that this order also puts to rest speculation that theregulator cannot take action against investors guilty of wrongful acts. In this matter the party was an investor and the act very clearly says that we can take action against any person who is associated with the securities market," said Sebi executive director (legal) Dharmishta Raval.

"Our powers to issue directions under section 11 and 11 B have now been upheld by three different high courts and this should clarify doubts in the market about the powers outlined in act for Sebi to protect the integrity of the market," said Raval.

Incidentaly, the action taken by Sebi in this case is somewhat similar to the Hindustan Lever insider-trading case where rather than impounding proceeds, Sebi has ordered compensation, in both cases it was an act of "disgorgement". Like impounding, compensation too does not figure in the list of actions that the regulator can take under the unfair trade practices regulations.

HLL has questioned the powers of Sebi to order compensation and the regulator has cited the samereasoning before the Mumbai high court, where the case is currently being tried, as it had before the Gujarat High Court, and plans to cite this judgement before the Mumbai court when the case comes up for final hearing.