Fostering enforcement mechanisms the regulatory challenge asian roundtable bangkok 13 14 15 september 2006
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Fostering Enforcement Mechanisms: The Regulatory Challenge Asian Roundtable Bangkok, 13 – 14 -15 September 2006. Presentation by M.K. Chouhan Chairman, Mahendra & Young Knowledge Foundation Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance. Empowerment issue.

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Fostering Enforcement Mechanisms:The Regulatory ChallengeAsian RoundtableBangkok, 13 –14 -15 September 2006

Presentation

by

M.K. ChouhanChairman, Mahendra & Young Knowledge Foundation

Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance


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Empowerment issue

Adequate empowerment has been given to SEBI

  •  SEBI Act w.e.f. 1992

  • Series of amendments have come since then :

  •  1995 – Monetary Penalties were included

  • 2000–Enforcement Powers / Investigation / Search / Seizures (Section 11 –C)

  • 2004 – Demutualization of stock exchanges

     Thus , SEBI is reasonably empowered


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Obstacles & Barriers to effective enforcement

Criminal prosecution :

  • Regular courts very slow,

  • Cases used to take very very long time.

  • Normal courts busy with routine work

  • disposal rate very low 12 – 13 cases in a year

  • It takes 10 –12 years, therefore violator is not worried.

      Eg Out of 1000 cases filed most are at stage of summons.

    Enforcement Obstacles :

    Power vested with other law enforcement agency like CBI or Police are not with SEBI.


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Obstacles & Barriers to effective enforcement

  • If one particular firm is barred from dealing in Securities, People behind it may operate through alternate firm. Detection of these related firms is difficult.

    Separate powers for Enquiry, adjudication & administration – delay decisions

    1. Enquiry Officer – Authority for Suspension of Certification

    2. Member of SEBI – Authority to for Administration / Direction i.e. Debarring from operating in securities Market.

    3. Adjudication Officer–Authority for Monetary Penalty


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Indian Experience

  • Two Designated Courts have been set up for SEBI prosecution cases at Mumbai & New Delhi

  • With Oct 2002 SEBI amendment – SEBI can impose up to Rs 25 crore (US$ 5.5 mn) penalty e.g Recently Holicim a Swiss co. having JV with Indian Cement CO. has been imposed 25 crore (US$ 5.5 mn) penalty

      A Broker - Ketan Parekh has been debarred for 14 years from dealing in Securities Market


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Indian Experience

  • After 2002 amendment, tiers have been reduced to only three : High courts are avoided.

    The cases are settled in the following manner

    SEBI to Securities Appellate Tribunal (SAT), to Supreme Court

  • Issues of fact are settled in SAT

  • Law related issues are settled in Supreme Court.


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What should be done ?

Enforcement at various levels :

  • Self Regulated Organizations (SRO’s) should be encouraged and empowered

  • SEBI registered

    – Broker SROs

    – Mutual Funds SROs


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What needs be done ?

  • Revenue Recovery Act being suggested

  • Compensating the victims is not being done, only action against offender is being taken

  • There is no specific provision in statute on disgorgement area. Thus such provisions should be brought.

  • No power for confiscation of proceeds of Securities, during investigation. such powers should be brought

    Eg. If fraudulent allotment is made by a promoter, it can be debarred for some time, but chances are that these securities might again come to the Market.


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What needs be done ?

  • Multiple Enforcement Action i.e Enquiry & adjudication, administrative powers, All these three powers should be under one single authority

  • Investor awareness should be improved so that compliance can be quickened.

  • Justice Karia Committee has given it’s report & recommendations can be viewed on www.sebi.gov.in

  • Effective Speedy enforcement

    Justice delayed is justice denied