In a setback to market regulator Sebi, the Solicitor General of India has pronounced that it cannot change rules in the laws enacted by Parliament. This could reverse Sebi’s new rules on buyback that were notified in August 2013. The law officer’s advice came in the wake of Sebi’s attempts to change norms in buyback regulations of the Companies Act, which Mohan Parasaran said was tantamount to Sebi amending Acts of Parliament.
“A legislation cannot be watered down by the exercise of the regulatory power which being a delegated power is subordinate to legislation made by the Parliament. Sebi has prescribed a different time limit within what is prescribed under the Companies Act which tantamounts to Sebi making amendment to an Act of Parliament,” said Parasaran in his opinion dated February 19, relating to Sebi amending timeline of buyback of shares that was sought by the law ministry.
Parasaran added that “such an attempt would seek to virtually end the effectiveness of time limit prescribed by the Act of Parliament”.
Legal experts feel Sebi should be allowed to strengthen standards. “I do not agree with this as Sebi can enhance the standards of regulation though they cannot dilute it, which is true in this case. It is also because Companies Act applies to most if not all companies while there are only a thousand listed companies that fall in Sebi’s ambit,” said Sandeep Parekh of FinSec Law Advisors.
Experts say that another instance when Sebi has tried to amend laws is the listing agreement. The changes brought in governance norms for listed companies go much beyond the Companies Act.
The Indian Express had on February 28, reported that the ministry of corporate affairs had objected to the changes made by Sebi in the buyback norms. The department of legal affairs too maintained that Sebi did not have the power to amend provisions in Section 77A of the Companies Act.