Sebi overhauls settlement rules, starts confidentiality clause
New Delhi: Markets regulator Sebi has made the settlement rules more attractive to help fast-track cases, by including confidentiality and lenient terms for approvers, but not to settle cases of defaulters and fugitive economic offenders. The regulator said it will not settle proceeding in case the alleged default has market wide impact, caused losses to a large number of investors, or affected integrity of the market.
The new norms will become effective from January 1, 2019, the Securities and Exchange Board of India (Sebi) said in a notification. The guidelines are based on suggestions made by a panel headed by retired judge A R Dave. Under the new settlement rules, the regulator has introduced a confidentiality clause and lesser settlement amount for those offering information about an ongoing or possible violation. Besides, the Sebi will give an opportunity to an entity facing possible charges and enforcement actions in certain cases to file a settlement application within 15 days of such a notice.
If an entity fails to file a plea after Sebi's settlement notice, any further settlement attempt will be permitted only after the proceedings are completed at the regulator's end and the matter is pending before a court or a tribunal. Also, the settlement fees and charges have been increased, while the amount will be even higher in cases of delayed filing of application.
There has been an increase in the number of cases being settled over the past few years and the regulator is keen to further encourage this route to close cases that are not very serious in nature. As many as 200 cases were settled for a total amount of over Rs 30 crore in 2017-18, up from 103 cases for Rs 13.5 crore in 2016-17 and 34 cases in 2015-16 for Rs 4.42 crore.
Under the rules, an applicant will need to make one application for settlement of all proceedings that have been initiated or may be initiated and make full and true disclosures about the alleged defaults. A settlement plea will not be considered if an earlier application for the same alleged default has been rejected or in cases involving outstanding funds for recovery under securities laws.
In case of withdrawal of a settlement plea, a second chance would be given only if the applicant agrees to pay at least 50 per cent more settlement amount. Besides, the Sebi will not entertain settlement pleas for alleged defaults having market-wide impact, loss to a large number of investors and those impacting integrity of the market.
Also, the regulator will not settle cases involving wilful defaulters, fugitive economic offenders and those having defaulted in payment of fees or penalty imposed under securities laws. A settlement application will need to be filed within 60 days of a show-cause notice and within 120 days in exceptional cases having sufficient cause for delay, in which case the amount would increase by 25 per cent.
It also provide for non-monetary settlement terms, besides a settlement amount and these would include suspension of business activities, exit from management, disgorgement of losses incurred by investors, restraint from being an officer or director, cancellation, reduction or lock-in of shareholding, enhanced audit and procedures etc.
An applicant can seek benefits of confidentiality and lenient terms (in form of lower settlement amount) by agreeing to help in investigation, provided he or she ceases to participate in violation of securities laws, provides continued and true disclosure of information and evidence and doesn't conceal, destroy, manipulate or remove relevant documents required to prove the alleged violation.
This will be applicable if the information provided relates to a securities law violation that has occurred, is ongoing or is about to occur. In case such an applicant fails to comply with necessary conditions, Sebi will be be able to rely upon the information and evidence submitted to it in any proceeding.
Besides, the confidentiality will not apply if a disclosure is required by law or if the applicant has made a public disclosure or agreed for disclosure in writing.
Meanwhile, Sebi imposed a penalty of over Rs 82 lakh on five entities for indulging in price manipulation by contributing to positive last traded price (LTP) in the scrip of BGIL Film and Technologies. In five separate orders, Sebi said the entities "created positive LTP of Rs 101.26 by trading among themselves," thereby violating PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.
A person or entity indulging in any act amounting to manipulation of price of security violates PFUTP regulations. The regulator conducted an investigation from June 2008 to March 2009 on receiving information that scrip of BGIL went up to Rs 100 in short period of time on the company's merger announcements.
The probe found that the entities belonged to a group and were connected to each other, indulged in creation of misleading appearance of trading in the scrip which manipulated the price and volume of the share by contributing to significant amount of positive LTP, Sebi said.
By indulging in such activities, entities violated PFUTP norms and hence liable for monetary penalty, Securities and Exchange Board of India (Sebi) said in an order dated November 30. Accordingly, Sebi imposed a fine of Rs 30 lakh on Tanuja Singh, Rs 20 lakh on Kartik Share Traders, and Rs 20 lakh on Rajiv Kumar Agarwal and Yogeshwari Gupta to be paid "jointly and severally". Besides, a penalty of Rs 10 lakh and Rs 2.5 lakh were imposed on Jitendra Kumar Bhatia and Krushna Kumar Brahmbhatt, respectively.
In two separate orders, Sebi imposed a total penalty of Rs 9 lakh on four individuals for indulging in fraudulent trade in the shares of Kaveri Seed by executing synchronised trades which resulted in artificial volume and led to false appearance of trading in the scrip.
