The Securities and Exchange Board of India (Sebi), which regulates capital markets and is also mandated to ensure good corporate governance at over 5,000 listed companies, often gets criticised by corporates for its action against large entities found to have violated the norms. Undeterred by such criticism, Sebi has taken to task many large corporates and financial market players for various kinds of wrongdoings committed by them.
“Seriousness of the crime is the yardstick for our action, not the size of the corporate. We are following the same system that is followed in the criminal law justice in the country,” Sebi chairman U K Sinha said. Giving an example, he said a crime involving <g data-gr-id="54">theft</g> of a watch can be probably compounded, but this can not be the case for a murder.
“Serious crimes can not be compounded, the smaller crimes can be. We have followed the same approach,” Sinha said in an interview. Asked whether Sebi can evolve a system where serious crimes would lead to stricter action, irrespective of the size of the corporate committing the crime, Sinha said, “This is what Sebi is doing.”
He also said that Sebi has made sure that there is no scope of any discretion when an officer is probing a case or is passing an order. “There has always been a perception that every organisation and every government official wants a lot of discretion so that they can favour somebody or harm somebody. “Our effort at Sebi has been to remove this discretion and make things crystal clear for the persons outside Sebi. We have put in place mathematic formula to determine the amount of the penalty and the settlement <g data-gr-id="51">charges,</g> so that there is no discretion involved,” Sinha said.
Giving <g data-gr-id="63">example</g> of Sebi’s consent settlement guidelines, the Sebi chief said the regulator put in place a new set of rules in this regard in 2012 under which a serious offence can not be settled at all. “Broadly, we have said that there are two kinds of offences - some are very serious and some are not so serious in nature. We have said that a crime which is serious in nature, it can never be consented. You have to suffer, pay the penalty and face the consequences,” Sinha said.
“You can not commit a major offence and still get a settlement on it and walk out of this room as if nothing has happened,” he added. “Earlier, this was not the case, as one can commit any kind of offence and still get away with a settlement. Now, consent can not happen in serious cases, as we have very clearly outlined a framework specifying the cases where a consent settlement can not happen.
“Insider trading is one example and front running in mutual funds is another case which can not be settled. For market manipulation also, you have to suffer,” Sinha said. He further said that some people earlier had a doubt whether Sebi’s consent settlement guidelines were legally sustainable as they were issued through a circular. “So when the Sebi Act was amended last year, we requested the government and they have put it (settlement) there. So our consent mechanism has now got
statutory backing by Parliament and so we have now framed regulations.
Par panel for single-window redressal to all investor problems
To ensure a single-window clearance system for resolving all investor problems, a Parliamentary panel has suggested bringing the grievance redressal mechanism under the proposed IEPF Authority. The suggestion comes against <g data-gr-id="113">backdrop</g> of rising instances of investors getting duped by fraudulent investment schemes and dubious companies. The panel has also said that setting up of the Investor Education and Protection Fund (IEPF) Authority, under the new companies law, has taken an “unduly long time”. Under the Companies Act, 2013, the Corporate Affairs Ministry is to set up the IEPF Authority but it would not cover redressal of investor grievances in the proposed form. Noting that redressal of investor grievances has remained an area of neglect, the panel said that small investors “have often been short-changed by unscrupulous promoters and dubious companies”.
The performance of the Ministry’s field offices in providing prompt redressal for such grievances has been “less than satisfactory”, it said. These observations are part of the Standing Committee on Finance’s report on action taken by the government on the recommendations made by the panel on Demands for Grants (2014-15). The proposed IEPF Authority would be responsible for <g data-gr-id="111">administration</g> of investor education and protection funds, undertaking investor awareness, refund of unclaimed amounts, distribution of disgorged money and reimbursement of legal expenses under class action suits.