New Delhi: Tightening the regulatory noose on fraudsters, Parliament today cleared a key bill to allow Sebi to act against ponzi schemes and market manipulators more effectively with powers for search and seizure, attachment of assets, arrest of defaulters and access to call data records. Besides, a special Sebi court would be set up in Mumbai to fast track prosecution proceedings launched by Sebi, as also to clear search and seizure operations proposed by Sebi.
This marks a dilution from the direct powers granted to Sebi Chairman through as many as three ordinances in the past one year to authorise search and seizure operations and is being seen as a safeguard against any possible misuse of such powers by the capital markets regulator. The new bill, which has as many as 57 clauses to amend various sections of the Sebi Act and two other related legislations and was passed in Lok Sabha on August 6, was cleared by Rajya Sabha today. This paves the way for notification of new legislations to amend relevant Sebi Acts. This comes more than one year after the first ordinance was promulgated by the previous government in July 2013 to grant additional powers to Sebi to take on fraudsters and other defaulters.
The ordinance was promulgated for the second time in September last year, followed by a third ordinance in January this year, as a bill could not be passed in the Parliament at that time to grant permanent powers to Sebi. The third ordinance also lapsed late last month, leaving Sebi without these extra powers which were used by the regulator in nearly 1,500 cases during their validity period.
The ordinance, which had 30 clauses, was brought in the backdrop of lakhs of small investors being duped by numerous fraudulent investment schemes across the country, like in the alleged Saradha scam and other such cases in West Bengal.
The bill gives Sebi powers to act against all illegal money-pooling schemes involving Rs 100 crore or more, launch recovery proceedings, pass disgorgement orders for ill-gotten money and facilitate its return to identifiable investors, and seek call data records and other information from any person, company, bank, authority or organisation during its probes. However, these powers do not include authority to tap phones and other electronic data directly.
Jaitley said there were provisions for compensating the victims of the fraud, besides putting the disgorged money into the Investor Protection and Education Fund.
On the concerns of members over penal provisions, he said the penalty has to be proportionate with the crime as “you don't use a hammer to kill a fly”.
The bill aims to empower capital market watchdog SEBI by giving powers such as to crackdown on fraudulent investment schemes, seek information from any entity related to a probe authority and to seek call data records.
Fraudulent investment schemes involving money circulation schemes are popularly known as ponzi.
Under the new bill, the Securities and Exchange Board of India (Sebi) would require permission from a designated court in Mumbai for carrying out search and seizure operations related to investigations.
An ordinance to empower SEBI to deal with ponzi schemes was promulgated thrice during the previous UPA regime but the same could not be passed by Parliament to make it an Act.
Once the bill becomes an Act, SEBI would have powers tocall for information “not only from the people or entities associated with the securities market but also from persons who are not directly associated with the securities market”.
