SAT puts verdicts on hold as 3rd member’s seat stays vacant

Mumbai: After passing a split verdict in the PNB Housing matter due to lack of quorum, the Securities Appellate Tribunal (SAT) has now put on hold the passing judgements in other matters.

The tribunal has postponed its verdict in more than a dozen cases during the last few weeks as it waits for the finance ministry to fill the vacant position on the bench.

SAT, which primarily hears appeals against the decisions of market regulator Securities and Exchange Board of India (Sebi), comprises three judges including a presiding officer and a technical member.

However, the position of technical member has been vacant for the past few months, reducing the bench strength to two. Legal experts say having two members could often lead to divided verdicts making things difficult for both the market regulator and the appellants since they will be forced to move the Supreme Court for a final verdict.

Recently, in the matter of Kirloskar Brothers that came up for hearing on August 13, the SAT order said, “Due to non-availability of the Bench stand over to 25th October 2021,”

The issue started after the last technical member CKG Nair retired on March 31. Currently, the SAT has Tarun Agarwala acting as presiding officer while MT Joshi is the judicial member. “It is unfortunate that the search for a technical member has resulted in such an impasse,” said Shruti Rajan, partner, Trilegal. “Section 15R clearly allows the tribunal to continue to function, but it’s sometimes difficult to avoid the practical outcomes of a divided house.”

In July, Sebi asked housing lender PNB Housing Finance to put its proposed ₹4,000 crore preferential allotment to US-based Carlyle Group on hold. Sebi took the view that the pricing of shares in the allotment was against the Articles of Association (AOA) of PNB Housing. The lender moved SAT against this interference by Sebi. However, the issue did not reach any logical conclusion at the SAT as the tribunal delivered a split verdict with one judge agreeing with Sebi action while the other opposed it.

Legal experts say there are at least three other firms facing similar AOA issues and they were waiting for the SAT to deliver its verdict in the PNB Housing matter so that they can alter their deal structures accordingly. The case is expected to be heard by the Supreme Court soon.

“The lack of appropriate members at the SAT has effectively led to a high-profile deal such as PNB-Carlyle deal being placed in limbo for the time being,” said Sahil Arora, partner, Saraf & Partners. “Given the criticality of the issue and its potential impact on future deals and fundraising, the verdict was being closely followed by potential investors who have been left disappointed at the uncertainty and the avoidable time lag.”

To be sure, market participants and aggrieved parties can move the high courts instead of SAT even for security market appeals. However, SAT is considered a far more viable option given its expertise in security market matters and timely conclusion of cases that typically takes six months.