SEBI, through its order dated June 20, 2013, had barred Pan Asia Advisors and one Mr. Arun Panchariya from rendering services in connection with securities, dealing in securities and accessing the capital market for 10 years, for having manipulated the securities market by issuing global depository receipts. This order was challenged before the Securities Appellate Tribunal, wherein SEBI’s jurisdiction on GDRs was examined. SAT ruled that SEBI does not have jurisdiction to issue orders in transactions in GDRs as they fall within the exclusive jurisdiction of the Ministry of Finance. SEBI’s jurisdiction is limited to regulating “securities” as defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956. Although, SAT did not decide on whether GDRs would be “securities” under the SCRA, consequent to SAT’s judgment GDRs got carved out from the purview of the SCRA; and hence out of SEBI’s regulatory domain. Significantly, the dissenting view in the order held that SEBI has powers to regulate and adjudicate on transactions in GDRs.

The majority ruling of SAT was the leading law regarding SEBI’s jurisdiction on depository receipts until December 2013; when the Supreme Court stayed the SAT order, pending the final decision in an appeal by SEBI against the SAT decision. The Supreme Court, on July 06, 2015 ruled in favour of SEBI. The Supreme Court held that SEBI had jurisdiction while passing the order dated June 20, 2013 and that a GDR is a form of “security” as defined under Section 2(h) of the SCRA. Further, relying on constitutional principles of extra-territorial jurisdiction and SEBI’s powers under the SEBI Act, 1992, the apex court held that, the allegations leveled against Pan Asia may have far reaching consequences for the Indian securities market and Indian investors, and consequently, SEBI’s duty of investor protection would automatically come into play.

This settles a long standing confusion regarding SEBI’s jurisdiction over ADRs and GDRs. SAT’s decision was criticized since the definition of “securities” under the SCRA clearly includes “rights and interest in securities” within its ambit. This should have perceptively led to classifying depository receipts, which are instruments representing rights and interests in Indian equity shares, as “securities”. The Supreme Court’s verdict has now provided the much needed clarity on the matter.