Super-powered SEBI

As SEBI didn’t have to face many hurdles on getting its proposals accepted by Govt, it must play with its newly gathered cards efficiently so that no corner can levy criticism against its functions.

Heartiest congratulations to Securities and Exchange Board of India (SEBI) for its post-silver jubilee gift from Government!! Through Securities Laws Ordinance, 2013, finally SEBI received what it long wished for in order to effectively practise its regulatory responsibility. This ordinance vests SEBI with sweeping powers which will go a long way to establish it as one of the most powerful market watchdogs in the world. It’s interesting that such an important and long-awaited legislation was quietly promulgated by Govt. through ordinance route at the time when nation remained focused upon Sen-Bhagwati slugfest, Food Security Ordinance and evergreen Modi-Rahul debate. As SEBI didn’t have to face many hurdles on getting its proposals accepted by Govt, it must play with its newly gathered cards efficiently so that no corner can levy criticism against its functions.

Although there is already a section contending that draconian powers have been accorded to SEBI which might be misused but given SEBI’s meek attempts to attack on fraud companies in past, escalating its influence as market regulator had become a necessity. For instance, in the recent dispute between SEBI and Sahara, former could not yet convict latter due to its inability to recover funds latter accumulated by illicit schemes. But now, not only can it penalize such defaulters but also realize penalties by attaching and selling their immovable properties.

In a major development, new law has empowered SEBI to access investigative information from non-listed entities too which don’t fall under its purview and also from susceptible investors. Until now, it could ask for information only from regulated entities, listed companies and banks. Moreover, it is now authorised to launch search and seizure operations at company premises it suspects of wrongdoing. No approval from magistrate will be needed; SEBI Chairman’s consent will be enough. Also, now SEBI can monitor phone call data without court intervention, something which it long sought for in order to investigate claims of insider trading and manipulation in the country’s capital markets. Though it is still bereft of power to tap phone calls and access mail transcripts yet getting call records including its discretion to launch search in seize exercise will help its investigation team to connect the dots better.

Keeping in view chit funds fraud especially that of Kolkata-based Sardha group, amended act now provides legal sanction to SEBI to monitor and take actions against those illegal collective investment schemes(CISs) whose capital base amounts to more than 100 crore. Although it doesn’t have jurisdiction over CISs floated by registered chit fund companies, mutual funds and Non-Banking Financial Institutions but all such, if found illegal and contains corpus beyond 100 crore, will be regulated by SEBI. Ordinance also mandates for establishing special courts to speed up the trial process so that the backlog cases can be cleared up and new cases can be expeditiously wound up.

Though amended SEBI Act is excellent and definitely furthers the objective of making regulatory system effective, few of its provisions might be conducive to ambiguity in regulation. For instance, now that SEBI can question non-listed entities and also has power to define what constitutes as CIS, institutions regulated by RBI such as banks, NBFCs etc and chit fund companies, nidhis regulated by state govt., in special cases, will fall under the ambit of SEBI too. Such loopholes in the absence of detailed guidelines might lead to regulatory confusions in financial market among various regulators.

Thus the ordinance empowering SEBI with far-reaching powers is a welcome move by Govt. in order to protect gullible investors from fraud investment-collectors. But given that SEBI’s jurisdiction has now gone beyond stock market, it must stay cautious so that no clashes of powers, no turf wars incepts with other financial market regulators. Now, it would be interesting to wait and watch how SEBI delivers on effective governance with its newly acquired regulatory powers.

Rajat Gupta's India

If justice delayed means justice denied then India is a country of an acute justice deficit. Especially in the case of financial frauds it is a land of comprehensive absenteeism of justice. The fast and quick trial and conviction of Rajat Gupta, an erstwhile Managing Director of management consultancy McKinsey & Company in insider trading has shown the robust and speedy law enforcement process of US Govt. One cannot imagine this to happen in India thanks to an abysmally procrastinating judicial system and archaic legislative setup.

The trial of  Rajat Gupta began on 21st May 2012 and less than a month on 15th Jun 2012, he was found guilty of conspiracy and three counts of insider trading. Just four years and one month elapsed between the telephonic conversation that took place between Mr Gupta and Mr Rajaratnam and his sentencing on Wednesday. Who can forget Harshad Mehta and what has happened to Ketan Parekh or for that matter Bofors case which took 25 years for its denouement. These trials don’t even deserve any comparison with that of Rajat Gupta yet latter is seeing hard-time just because he wasn’t lucky enough to get trialed in India.

Insider trading of stocks is notoriously hard to prove anywhere in world. According to the SEBI’s annual report, it took up investigations of 24 insider trading cases and completed investigations in 21 in the year 2011-12. Insider trading cases accounted for 15 per cent of the total number of cases. Yet, not a single example can be cited when any person involved in insider trading got convicted in India. SEBI has only few instances of success when Reliance Infrastructure and Reliance Natural Resources were fined for breaching securities laws. It has also fined a former independent director of Ranbaxy Laboratories, V K Kaul and the chairman of Jaiprakash Associates (JAL), Jaypee Group’s engineering and construction arm Manoj Kumar for the same but these efforts of market regulator go in vain as most of them simply appeal against their charges in the tribunals or courts and the case then either drags for years or goes against the SEBI itself. For instance, recently, the order against Gaur was set aside by the Securities Appellate tribunal (SAT) for want of evidence.

It is quite hard to crack the financial fraud being done in financial institutions and even more difficult is to defend it in the courts of law. SEBI is asking for more powers to monitor economical frauds. It is worth noting that the charges against Mr. Rajat Gupta would not have been proved in the absence of wiretaps available. It is against this background that SEBI has been asking for powers to have access to call records of suspected persons involved in fraud and also seeks the demand of special courts for special trials but it doesn’t seem to be happening anytime soon.

 Gurcharan Das writes in India Grows At Night–A Liberal Case for a Strong State that “500 out of the 3,500 central laws are obsolete and needed to be scrapped, and half of the 30,000 state laws as well.” This is why India is sickened with its poor-governance and often humored due to the weak enforcement of laws. India needs a complete legal overhaul in terms of fresh laws and swift jurisprudence. It is dire must to maintain the rule of law in the nation and to mend its image of soft estate for the crooks.