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SEBI ACT, 1992

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Legislative Framework

Securities and Exchange Board of India Act, 1992 Rules made by the Government of India Regulations made by SEBI Securities Contracts (Regulation) Act, 1956

Securities Contracts (Regulation) Rules, 1957 Depositories Act, 1996

Stock Exchange Bye-Laws

Depository Bye-Laws

Clearing Corporation Bye-Laws

Listing Agreements with Stock Exchanges

Companies Act, 1956

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Regulatory Legacy

Every 2-3 years there has been a new scam

Each scam has led to SEBI being conferred with greaterpowers

1988 GOI Resolution 1992 SEBI Act

1995 New Powers

Adjudication penalties

Power to make regulations without GOI approval

Power to prosecute without GOI approval

1999 Appeal provisions strengthened

2002 Stringent penalty powers conferred

2004 New Ordinance with even more powers

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Segregation of Powers

SEBI Act delegates power to makeregulations

Central Government approval until 1995

Now, only tabling in Parliament is required

Administration by SEBI officials

Sentencing is also by SEBI officials

Prosecution too to be done by SEBI

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Penal Framework

Four-pronged penal framework

Directions in investor interest

Adjudication Proceedings

Criminal Prosecution

Enquiry Proceedings

Each course without prejudice to the others

Replication in three Statutes Action under Companies Act, 1956

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Directions in Investor

Interest Wide-ranging creative measures

Penal directions whether or not remedial is

only abstruse legal theory Power to issue directions replicated in

respective SEBI Regulations

Even natural justice can be suspended No statutory timeframe for finite action

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General standard minimum penalty of Rs. 1lakh per day

In some cases, no upper limit Three times the value gained, subject to minimum

penalty of Rs. 25 crore

Five times the value of un-issued contract note

Five times the excess brokerage charged

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Conflicting provisions on penalty Section 15J prescribes penalty criteria

Amount of disproportionate gain or unfair

advantage Amount of loss caused to investors due to default

Repetitive nature of default

Penal provisions prescribe fixed penalty

No timeframe for action

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Any contravention of any provision, rule orregulation is a criminal offence

Offence is punishable with: Imprisonment of upto ten years; or

Fine of upto Rs. 25 crores; or

Both

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Failure to comply with Adjudication Officersorders attracts penalty of:

Imprisonment of at least one month, and upto ten

years; or

Fine of upto another Rs. 25 crores; or

Both

New concept of private prosecution in the SCRA Sessions Court alone may try offences

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Enquiry Proceedings

May be initiated against any market intermediary

Minor Penalties Warning / Censure Suspension of registration for less than three months Prohibiting operations for upto six months Debarring a partner / wholetime director for upto six months Debarring a branch / office from operations for upto six months

Major Penalties Aforesaid penalties for more than six months Cancellation of registration Suspension of registration for over three months

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2004 Ordinance

SCRA and Depositories Act amended toprovide powers to :-

Issue directions

Impose adjudication penalties


Penalize for same offences as punishable under

SEBI Act

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Appellate Structure

Any order passed by SEBI is appealable

Consent orders not appealable

Appeal from SAT lies directly in the SupremeCourt only questions of law

Jurisdiction of civil courts entirely barred

Writ jurisdiction of High Courts rarely used

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Appeal Record

On average, more than one order a day

Contrary to popular belief: - Only 30% orders are appealed

In 63% cases, SEBI orders are upheld Judicial attitude furthers the regulators cause

Higher the profile, lower the prospect of success

Regulators tend to be under-staffed

Law officers defend actions, but not consultedbefore action

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Plea Bargaining

Still-born provision for compounding

Only offences without element of imprisonmentcompoundable

Every offence has imprisonment penalty

Compounding available only for criminal prosecution

Civil adjudication penalty may still be levied

Anomalous provision replicated in other laws Consent Orders provide a way out

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Immunity Power

GOI may provide immunity from any penaltyor prosecution

Immunity may be issued only on

recommendation by SEBI If proceedings have commenced, no

immunity possible

Application for immunity could lead toproceedings

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Conclusions

Robust wide-ranging regulatory powers

No segregation of functions and powers

Multiple-jeopardy for same offence

Plea bargaining provision is still-born No guidelines for issuance of directions

Sentencing guidelines for penalties too broad

Search & Seizure powers hardly used

Granting more powers may be destructiveMake the securities market as safe for practitioners asfor investors

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THANK YOU

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