SEBI's new teeth: Can order arrest and attachment of defaulter's property

The government has also allowed Sebi to seek information from regulators here and abroad with retrospective effect. New Delhi In a major upgrade of powersgiven to Sebi, the government has allowed it to pass orderslike search and seizure, attachment of properties, arrest anddetention of defaulters and pass disgorgement directions torecover the wrongful gains made in contravention of laws. At the same time, the government has also allowed Sebi toseek information from other regulators within India and abroadwith retrospective effect, paving way for collection ofdetails pertaining to cases pending for over 15 years now. In another retrospective change, which forms part of theSecurities Laws Amendment Ordinance promulgated by thePresident of India last week, the individuals and companiesbeing probed by Sebi can settle their pending investigations. Such settlements can be undertaken in cases that are currentlypending for more than six years. To tackle the growing menace of ponzi schemes beingfloated as Collective Investment Schemes (CIS), the rules havealso been amended to classify any money collection of Rs 100crore or more as CIS operation. Sebi has been given powersto crack down on illegal investment schemes floated byindividuals as well, as against companies only as of now. However, all government-notified schemes would be out ofthe Collective Investment Scheme framework. The changes are part of as many as 22 amendments made bythe government in three main Acts governing Sebi and itsoperations -- the Securities and Exchange Board of India(Sebi) Act, the Securities Contracts Regulation Act (SCRA) andthe Depositories Act -- through a 16-page Ordinance. Among others, Sebi has also been given powers to passdisgorgement orders for amount equivalent to wrongful gains orto losses averted by contravention of regulations. Besides, the regulator can now enter and searchbuildings, places, vessels, vehicles and aircraft ofdefaulters. Its officers can also also break open the lock ofany door, box, locker, safe almirah, etc to get informationfrom suspected entities. At the same time, the defaulters can seek settlement ofpending cases with Sebi with retrospective effect from 20 April, 2012. The Ordinance also allows the government to set up asmany special courts, as required, to expedite hearing of casesinvolving contravention of securities laws. Sebi has also been given direct powers to attachproperties and bank accounts of persons and companies failingto comply with directions, involving payment of penalties,refunds to the investors and other dues. The regulator canalso order arrest and detention of defaulters in prison. The powers to seek information from other domestic andforeign regulators have been made effective retrospectivelyfrom 6 March, 1998. For seeking information from outside the country, Sebican enter into an arrangement, agreement or understanding withrelevant foreign authorities with the prior approval of thecentral government. At the same time, Sebi can now ask for information orrecords from any person, banks, authorities, boards orcorporation, if the regulator is of the opinion that suchdetails could be relevant to any investigation or inquirybeing undertaken by it. With regard to its new search and seizure powers, Sebican also access the documents maintained in the electronicformat. On settlement, the Ordinance provides that any personagainst whom any proceedings have been or may be initiated bySebi under certain sections, may file an application to Sebiproposing for settlement of such proceedings for the allegeddefaults. After taking into account the "nature, gravity and impactof defaults", Sebi can accept or reject such a settlement onpayment of an amount to be decided by the regulator, subjectto various terms and conditions. However, no appeals can be made against Sebi's decisionin these matters. The settlement provision has been made applicableretrospectively with effect from 20 April, 2007. For speedy trial of offences under various Sebiregulations, the Ordinance also provides for setting up of "asmany special courts as may be necessary" by the centralgovernment. Such courts would consist of a single judge to beappointed by the central government with concurrence of theChief Justice of the High Court within whose jurisdiction thejudge to be appointed is working. The judge would need to holding the office of a SessionsJudge or an Additional Sessions Judge immediately before suchappointment. Also, the person conducting prosecution on behalf of Sebibefore such a Special Court would be deemed to be a PublicProsecutor within the meaning of the relevant clause of theCode of Criminal Procedure. Such prosecutors would need to have been in practice asan advocate for at least 7 years or should have a minimumexperience of seven years in a relevant government job. Till the time a Special Court is established, anyoffences committed under Sebi Acts would be tried by a SessionCourt. If a person fails to pay the penalty imposed by Sebi orfails to comply with any direction for refund of money or anydisgorgement orders, the recovery officer appointed by Sebican proceed to recover such an amount. The recovery can be done through modes includingattachment and sale of the person's movable or immovableproperties, attachment of bank accounts, arrest of the personand his detention in prison, or appointment of a receiver forthe management of the person's properties. The properties and bank accounts that can be attachedwould also include those transferred to the names of hisspouse or minor child, or son's wife or son's minor child. These provisions would continue to apply even afterattainment of majority by a minor child or son's minor childduring the attachment procedures. The amendments have made it clear that Sebi would havepowers to pass orders against any person who has made profitor averted loss by indulging in any transaction or activity incontravention of the provisions of the Sebi regulations. PTI