Coexistence Of Regulatory Powers: A Legal Analysis Of ICICI Bank’s Case Against SEBI Orders

In a recent legal development, ICICI Bank sought legal recourse through a petition to establish the applicability of certain orders issued by the Securities and Exchange Board of India (SEBI)[1]. The dispute revolved around whether these SEBI orders hindered the bank’s ability to proceed under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) to sell a mortgaged property situated at The Palm Springs, Gurgaon. The court’s analysis of this matter unveils the intricate balance between the jurisdictional reach of regulatory bodies and the rights of banks to recover defaulted loans.

ICICI Bank filed a petition challenging SEBI’s orders dated May 29, 2018, and December 14, 2018. The bank’s primary contention was that these orders should not impede its ability to auction the mortgaged property under the SARFAESI Act, 2002. The court presided over by Purushaindra Kumar Kaurav, J., examined the intricacies of the case and delivered its verdict.

The court noted that SEBI possesses the authority to issue directions to entities and individuals, even those not registered with SEBI, under Section 11-B(1)(iii)(a) of the SEBI Act, 1992. However, such powers must be wielded cautiously, ensuring they do not infringe upon the mandates of other laws. The court upheld SEBI’s power to issue directions to ICICI Bank while also emphasizing the importance of not undermining the effect of other legislation.

The court’s analysis extended to whether the impugned SEBI orders restricted ICICI Bank’s right to alienate the mortgaged property. The court determined that the directions contained in the SEBI orders pertained to “entities,” distinct from “persons.” Consequently, the court ruled that the mortgaged property belonging to individuals (respondents 3 and 4) did not fall within the scope of the SEBI orders’ restrictions.

The court’s verdict acknowledged the coexistence of the SEBI Act, 1992, and the SARFAESI Act, 2002. While the SEBI Act aims to safeguard assets and prevent their dissipation, the SARFAESI Act provides a framework for banks to recover secured debts with minimal interference. The court stressed that both pieces of legislation should be harmonized to prevent conflicts. In light of this, the court concluded that proceedings under the SARFAESI Act, 2002, constitute a carve-out from SEBI orders, and the bank’s right to auction the mortgaged property remains intact.

The court’s ruling underscores the legislative intent behind the SARFAESI Act, 2002, which empowers banks to recover their security interests efficiently. By carving out a space for banks to execute recovery under the SARFAESI Act, the court aims to prevent undue interference and prioritize the bank’s ability to realize its security interests.

The legal dispute between ICICI Bank and SEBI sheds light on the delicate balance that exists between regulatory bodies and the rights of financial institutions. The court’s verdict reflects the nuanced understanding of these regulations and the importance of harmonizing different legislative frameworks to achieve their intended purposes without infringing on each other’s mandates. This case not only affirms ICICI Bank’s ability to proceed with the auction of the mortgaged property but also emphasizes the necessity of legal clarity and coherence in resolving such disputes. In the ever-evolving landscape of financial regulation, maintaining such balance remains crucial for fostering a stable and efficient financial system.

[1] ICICI Bank v. Deputy Manager, SEBI, 2023 SCC Online Del 4292