Fostering Enforcement Mechanisms:
The Regulatory Challenge
Asian Roundtable Bangkok, 13 –14 -15 September 2006
Presentation
by
M.K. Chouhan
Chairman, Mahendra & Young Knowledge Foundation
Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance
Asian Centre for Corporate Governance
Empowerment issue
Adequate empowerment has been given to SEBI
 SEBI Act w.e.f. 1992
 Series of amendments have come since then :
1. 1995 – Monetary Penalties were included
2. 2000–Enforcement Powers / Investigation /
Search / Seizures (Section 11 –C)
3. 2004 – Demutualization of stock exchanges
Thus , SEBI is reasonably empowered
Asian Centre for Corporate Governance
Obstacles & Barriers to
effective enforcement
Criminal prosecution :
 Regular courts very slow,
 Cases used to take very very long time.
 Normal courts busy with routine work
 disposal rate very low 12 – 13 cases in a year
 It takes 10 –12 years, therefore violator is not worried.
Eg Out of 1000 cases filed most are at stage of summons.
Enforcement Obstacles :
Power vested with other law enforcement agency like
CBI or Police are not with SEBI.
Asian Centre for Corporate Governance
Obstacles & Barriers to
effective enforcement

If one particular firm is barred from dealing in Securities,
People behind it may operate through alternate firm.
Detection of these related firms is difficult.
Separate powers for Enquiry, adjudication & administration –
delay decisions
1. Enquiry Officer – Authority for Suspension of Certification
2. Member of SEBI – Authority to for Administration / Direction
i.e. Debarring from operating in securities Market.
3. Adjudication Officer–Authority for Monetary Penalty
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Indian Experience

Two Designated Courts have been set up for SEBI
prosecution cases at Mumbai & New Delhi

With Oct 2002 SEBI amendment – SEBI can impose
up to Rs 25 crore (US$ 5.5 mn) penalty e.g Recently
Holicim a Swiss co. having JV with Indian Cement
CO. has been imposed 25 crore (US$ 5.5 mn)
penalty
A Broker - Ketan Parekh has been debarred for 14
years from dealing in Securities Market
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Indian Experience

After 2002 amendment, tiers have been reduced to only three
: High courts are avoided.
The cases are settled in the following manner
SEBI to Securities Appellate Tribunal (SAT), to Supreme Court

Issues of fact are settled in SAT

Law related issues are settled in Supreme Court.
Asian Centre for Corporate Governance
What should be done ?
Enforcement at various levels :

Self Regulated Organizations (SRO’s) should be
encouraged and empowered

SEBI registered
– Broker SROs
– Mutual Funds SROs
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What needs be done ?

Revenue Recovery Act being suggested

Compensating the victims is not being done, only action
against offender is being taken

There is no specific provision in statute on disgorgement area.
Thus such provisions should be brought.

No power for confiscation of proceeds of Securities, during
investigation. such powers should be brought
Eg. If fraudulent allotment is made by a promoter, it can be
debarred for some time, but chances are that these securities
might again come to the Market.
Asian Centre for Corporate Governance
What needs be done ?…

Multiple Enforcement Action i.e Enquiry & adjudication,
administrative powers, All these three powers should be under
one single authority

Investor awareness should be improved so that compliance
can be quickened.

Justice Karia Committee has given it’s report
recommendations can be viewed on www.sebi.gov.in

Effective Speedy enforcement
Justice delayed is justice denied
Asian Centre for Corporate Governance
&
THANK YOU