Thursday, October 29, 2009

Powers of SEBI and SEC Compared

In his column in the Business Standard this week, our guest contributor Somasekhar Sundaresan argues that, if one were to go by the rule book, SEBI has greater powers than the SEC. He lists out several significant powers of SEBI that can be exercised without intervention of the court. Here are some excerpts:

Take the Raj Rajaratnam case itself. The SEC has had to file a complaint before a court (see litigation/complaints/2009/comp21255.pdf) asking the court to pass orders to disgorge the alleged gains earned by way of insider trading, to restrain the accused from acting as officers or directors of any issuer of securities, and to pay civil monetary penalties under the US securities laws.In India, SEBI itself is armed with powers to take each of the aforesaid actions in absolute terms — not just as interim measures.

On an almost daily basis, SEBI issues directions under Sections 11 and 11B of the SEBI Act asking people not to deal in securities or to access capital markets or to be associated with capital markets. SEBI has wide powers to issue “such directions as it deems fit” with the only touchstone of rationale being the “interests of the securities market”.

Chapter VIA of the SEBI Act, 1992 empowers SEBI to inflict monetary penalties directly without the intervention of any court. Adjudicat-ing Officers, who are employees of SEBI, acting as quasi-judicial officers have the power to impose civil monetary penalties. These penalties can be as high as Rs 25 crore or three times the benefit gained due to the violation.

SEBI has also written subordinate legislation in the form of regulations governing market intermediaries registered with it to impose disciplinary penalties ranging from censure to cancellation of registration.

The only area where SEBI does not have powers for direct action without an intervention of a court is the ability to send people to jail. Section 24 of the SEBI Act requires SEBI to file a complaint before a criminal court to get an accused convicted and jailed for contravention of any provision of the SEBI Act, or rules or regulations made under it.

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