Sebi has 300 unsettled applications pending

Market regulator Sebi has nearly 300 applications from various entities pending with it for settlement of various probes through its ‘consent’ mechanism, an out-of-court-like procedure.

The Securities and Exchange Board of India (Sebi), which recently changed the contours of its consent procedure, has also rejected over 800 such settlement applications on different grounds since the mechanism was introduced in 2007.

As per the latest data provided by Sebi, it had 298 consent applications pending as on 31 March, 2012. Since then, Sebi has passed an estimated ten consent orders, while a few new ones have also been received by it.

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Under the consent mechanism, the entities being probed by Sebi pays ‘settlement’ charges, as also legal and administrative expenses, without admission or denial of charges. The settlement charges thus collected are remitted to the Consolidated Fund of India.

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The total amount received under the consent procedures so far has exceeded Rs 200 crore, while Sebi has disposed off more than 1,100 cases through this mechanism so far. Besides the payment of these charges, the settlement in 142 cases so far included penalties like debarment from dealing in securities market and suspension of certificate of registration for different periods.

Till March 2012, Sebi had approved 1,186 applications settling various kinds of enforcement actions. These include 75 consent applications where consent orders were passed by the Securities Appellate Tribunal (SAT) and the Supreme Court. The number also includes 70 compounding applications where the compounding orders were passed by the respective criminal courts.

Sebi has also rejected 817 applications and declined to pass consent orders for various reasons, including the reason that the terms of settlement proposed by the applicants were not found adequate by the HPAC (High Powered Advisory Committee of Sebi).

Similarly, Sebi did not accept compounding proposals in 26 cases. Sebi updated its board about the consent process and related statistics during its last meeting on 26 June. Earlier in May this year, Sebi streamlined its consent procedure, which was first introduced in April 2007. As per the new rules, certain defaults including insider trading, front running, failure to make an open offer, redress investor grievances and respond to the summons issued by Sebi have been excluded from the consent process.

The defaults falling in the category of fraudulent and unfair trade practices, which in the opinion of Sebi are very serious which could have caused substantial losses to the investors, would also not be consented. Under the new rules, Sebi will not consider any consent application if any violation is committed within a period of two years from the date of any consent order.

However, if the applicant has already obtained more than two consent orders, no consent application shall be considered for three years. Sebi has said that it would not entertain any consent application before completion of investigation or inspection. In respect of proceedings pending before Sebi, it would not consider the applications filed after 60 days from the date of serving the show cause notice.

Besides, Sebi will now consider a minimum benchmark amount for each category of default and additional amounts will be taken into account for previous defaults/track record of the applicant. Also, weightage would be given to the stage of the proceeding, nature of the default or violation, gravity of the charge and factors like volume traded, price impact, net-worth, profits made, nature of non-disclosure and its impact.

The consent terms would also include directives such as disgorgement of ill-gotten profits if necessary, while the settlement charges could be raised in serious cases and lowered if “the settlement amount is disproportionately higher considering the nature of violation.”

Last year, a civil writ petition was filed in Delhi High Court challenging Sebi’s consent mechanism. It was alleged that consent orders did not make a finding of any wrongdoing and did not contain any description of the facts alleged and hence prevent dissemination of very important information among investors.

After hearing the case, the court had passed an interim order, saying: “At this stage only order that can be passed is that depending upon the final outcome of the writ petition and in case the impugned scheme is quashed, appropriate orders can be passed in respect of those cases which have been dealt with by the respondent under the scheme.”

Subsequently, the Attorney General of India was consulted in the matter, who suggested that Sebi might write to all applicants with pending applications to inform them that the settlement, if any, would be subject to the final outcome of the matter before the court.

Later, Midas Touch Investors Association also filed an application for impleadment as a party to the proceedings.

PTI