Saturday, September 20, 2014

Typographical Errors Ailing Securities Laws?

[The following post is contributed by Vaneesa Abhishek, who is a securities lawyer and a former Legal Officer of the Securities and Exchange Board of India (SEBI)]

Background

The Securities Laws Amendment Act, 2014 ("2014 Act") was notified recently. Section 1(4) of the 2014 Act provides that certain provisions that relate to minimum penalty under adjudication chapters of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”), the Securities Contracts (Regulation) Act, 1956 (“SCRA”) and the Depositories Act, 1996 will be notified by the Central Government from a separate date. Interestingly, these minimum penalty provisions were not part of Ordinances earlier issued in 2013 and 2014 but were only included in Securities Laws Amendment Bill, 2014 for the first time when it was introduced in Parliament. The Central Government has issued a Notification No. S.O. 2287 (E) dated September 8, 2014 appointing this date itself to be effective date for provisions of section 6 to section 15, section 25 to section 32 and section 41 to section 47 of the 2014 Act to take effect.

It appears that the 2014 Act has some typographical errors that have created complexities in the implementation of certain provisions of that legislation.

Anomalies and Complexities  

The numbering of these provisions in the 2014 Act has led to following (presumably unintentional) consequences:

1.   Section 41 of the 2014 Act, which relates to disgorgement power under the Depositories Act comes into effect from September 8, 2014. It is further interesting to note that now, after this September 8, 2014 notification, disgorgement power under the SEBI Act and the SCRA comes with effect from July 18, 2013, while under Depositories Act with effect from September 8, 2014. Under the Securities Laws (Amendment) Ordinance, 2014, this provision relating to disgorgement power under Depositories Act was deemed to have come into force on the July 18, 2013.

2.   Section 48 of the 2014 Act relates to imposition of penalty of not less than one lakh rupees for contravention under Depositories Act where no separate penalty has been provided. By incorrect mentioning of Section 48 in Section 1(3) instead of section 49, this penalty provision has been deemed to have come into force on the March 28, 2014 which ideally should have come into effect from September 8, 2014, along with the other sections dealing with minimum penalty.

3.   On the other hand, Section 49 of the 2014 Act, which deals with SEBI's power to recall and enhance the penalty imposed by Adjudicating Officer under Depositories Act has come into effect retrospectively with effect from July 18, 2013. This brings the moot question whether such a substantial provision could be passed retrospectively! It appears to be an error because SEBI's power to recall and enhance the penalty imposed by Adjudicating Officer under the SEBI Act (provided in section 16 of the 2014 Act) and the SCRA (provided in section 33 of the 2014 Act) has been brought into force from March 28, 2014 and on this date itself ideally, the corresponding power under Depositories Act should also have been brought into force.


SECURITIES LAWS AMENDMENT ACT, 2014


Section

What Is Written, And Passed By Parliament


What It Should Ideally Be


1 (2)

Save as otherwise provided, the provisions of this Act, except clause (ii) of section 5, section 6 to section 16, section 25 to section 33, section 36 and section 41 to section 48, shall be deemed to have come into force on the 18th day of July, 2013.


Save as otherwise provided, the provisions of this Act, except clause (ii) of section 5, section 6 to section 16, section 25 to section 33, section 36 and section 42 to section 49, shall be deemed to have come into force on the 18th day of July, 2013.



1 (3)

The provisions of clause (ii) of section 5, section 16, section 33, section 36 and section 48 of this Act shall be deemed to have come into force on the 28th day of March, 2014.


The provisions of clause (ii) of section 5, section 16, section 33, section 36 and section 49 of this Act shall be deemed to have come into force on the 28th day of March, 2014.


1 (4)

The provisions of section 6 to section 15, section 25 to section 32 and section 41 to section 47 of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.


The provisions of section 6 to section 15, section 25 to section 32 and section 42 to section 48 of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

Avoidance of such a situation in Future

Although the Government may have realized that something was amiss in the 2014 Act, it only had the limited option of notifying sections mentioned in section 1(4).  Generally, in order to obviate the necessity of approaching the Parliament for removal of every difficulty, however trivial, encountered in the enforcement of the statute, the legislature confers the power on the executive to remove difficulties for implementing the statute. This helps is the effective implementation of the statute by giving the executive the power to make minor adaptations and peripheral adjustments in the statute without touching its substance.

To illustrate, clause 449 of the proposed Indian Financial Code recommended by the Financial Sector Legislative Reforms Commission chaired by Justice B. N. Srikrishna gives the Central Government the power to remove difficulties through notification, provided that the notification is not inconsistent with the provisions, intent and purpose of the main Act. Unfortunately, section 34 of the SEBI Act that confers power on the Central Government to remove difficulties through an order was only valid for five years from the commencement of the SEBI Act, 1992.

Since the 2014 Act lacked a general 'Power To Remove Difficulty' clause, the Government now has limited choices and statute book now has to live with these anomalies. It may be more desirable for the future to insert a section in the SEBI Act giving the Central Government the power to remove difficulties without altering the intent and purpose of the SEBI Act in any way, along the lines of the suggestion under the draft Indian Financial Code.


- Vaneesa Abhishek

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