To avoid parallel proceedings, the Bombay High Court on Friday directed the securities market regulator to communicate a deadline for an investigation against Trustee Association of India, IDBI, Axis and SBICap Trustee.
The matter reached the high court after the Association and the three debenture trustee firms challenged an order by the Competition Commission of India. In December last year, the CCI had directed its investigation arm to examine allegations of cartelisation against these entities. The firms have challenged the CCI's jurisdiction saying any investigation against them can only be carried out by the sectoral regulator, that is the Securities and Exchange Board of India.
After preliminary hearings on Friday, the high court asked SEBI's counsel to share the time required to complete an inquiry and submit a prima facie report.
Advocates for debenture trustees and their association argued that the CCI has no jurisdiction to direct an investigation as SEBI is the specialised sectoral regulator, which is already investigating the issue.
Even if the CCI wants to order an investigation, it can do so only after SEBI forms a prima facie view that the association has indulged in anti-competitive activities, against the competition law.Petitioners' Counsels
The petitioners relied on the Supreme Court's decision in the Bharti Airtel Ltd. case to say until SEBI gives a prima facie view, the CCI should hold its action in abeyance. In this case, the apex court had concluded that the sectoral regulator, that is the Telecom Regulatory Authority of India, should look into allegations of cartelisation before the CCI proceeds with its investigation. Pointing to this ruling, the debenture trustee firms prayed to quash and set aside the CCI order calling it illegal and without jurisdiction.
Arguing for the regulator, Senior Advocate Somashekhar Sundaresan said the CCI had launched an investigation into the conduct of the petitioners on a prima facie view that there is cartelisation between the debenture trustees. "Irregularities happening with regards to cartelisation come directly under competition law."
High Court Asks SEBI To Take Preliminary View
Justices GS Patel and Madhav Jamdar noted that there were a few communications between SEBI and the CCI on the issue.
SEBI had written to the competition regulator asking it to pause its investigation. On April 4, the CCI said it would continue its investigation unhindered by SEBI's communications to it. Adding that due deference will be given to the market regulator's opinion.
This being the case, the court said, possibility of parallel investigations in the matter could not be ruled out.
"'It seems to us that the scenario envisaged in Bharati Airtel of conflicting orders is a distinct possibility if parallel investigations are being conducted." –Bombay High Court
The court then went on to direct SEBI to inform the amount of time it requires to complete its inquiry and form a prima facie view in the matter. "We only note that since SEBI is the sectoral regulator it would be better in fitness of things... in aligning with the decision of Supreme Court if SEBI was given a reasonable chance to arrive at a prima facie view on the matter..."
We are not inclined to allow this to be a very long period of time. A reasonable period of time will be afforded to SEBI. For this is not a matter which should be dragged out for a long period of time. On the next date of hearing, SEBI will communicate the date by which it will complete investigation.Bombay High Court
If SEBI comes to the conclusion that it does not need to make any orders or that CCI should proceed with the investigation, then whatever material SEBI obtained during the course of its investigation should be transmitted to the CCI to save time, the court ordered.
The bench has declined to comment on the merits of the investigations by the two regulators and their jurisdiction.
The high court will hear the matter next on April 11.
The Story So Far
It all began when Muthoot Finance Ltd. initially approached SEBI alleging cartelisation by the debenture trustees. While its complaint was pending adjudication by SEBI, Muthoot approached the CCI alleging competition law violations by the debenture trustees and their association.
The allegation was that these debenture trustee firms have raised their their fees without giving issuers any specific reasoning. In December, the CCI came to a prima facie view that IDBI, Axis and SBICap Trustee had entered into anti-competitive agreements, which the association had facilitated. And so, it directed the director general to investigate their conduct.
Meanwhile, the Trustee Association approached the CCI to refer the matter to SEBI, as it is the appropriate authority to investigate into the matter. On Feb. 8, 2022, CCI rejected the association's application
On Feb. 15, 2022, the CCI issued notice to the association seeking detailed information pertaining to its office bearers. Aggrieved, it moved high court seeking to quash the CCI's orders.
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