Even as the country celebrates 25 years of the founding of the Securities and Exchange Board of India (SEBI), India’s first regulator has been compelled to ask the government to make changes to the SEBI Act to strengthen powers and function, particularly those of enforcement and surveillance in view of its shortcomings that have allowed violators to get away. With the government having agreed to most of the proposals, there are no constraints in the further empowerment of SEBI and a Bill is likely to be placed in Parliament soon. These changes are made necessary because of the series of violations as also scams that continue to rock the Indian markets, despite SEBI’s presence, exposing its limitations in protecting investors. SEBI has been seeking an overhaul of regulations governing its powers and mandate for a long time, given the changing nature of the securities market and newer tools being used by manipulators to take gullible investors for a ride. Though given statutory powers through the Securities and Exchange Board of India Act in 1992, around that time the country’s biggest stock market scam involving Harshad Mehta, SEBI has, since its inception felt compromised in its regulatory activities because of the absence of sufficient powers and has asked for more. This led to statutory amendments its favour in 1995 and again in 2002 but, with many of the new provisions being more preventive in nature, SEBI’s work as a regulator has continued to be affected because of legal limitations, with insider trading in particular being a bane.
SEBI has felt itself handicapped by its lack of power to carry out search and seizure operations, to attach properties and to ask for information and records of relevant entities. In the absence of such powers SEBI has had to rely excessively on circumstantial evidence with the result that it has not been able to prove beyond reasonable doubt in many cases, allowing many to get away. The lack of powers was demonstrated in a big way in some of the recent cases such as the Sahara case, where SEBI could pass attachment orders only after a Supreme Court directive. There is thus a necessity for the Indian regulator to borrow from the best global practices, as for example, some of the powers of the US Securities and Exchange Commission which used wiretapping and access to electronic mail to catch Rajat Gupta and Raj Rajaratnam of Wall Street fame.