Sebi gets new powers to launch crackdowns against fraudsters

Written by PTI | Mumbai | Updated: Jan 11 2014, 02:20am hrs
SebiSebi notified new norms empowering its Chairman to order search and seizure operations during investigations (Reuters)
Adding extra powers to its crackdown against fraudsters, Sebi today notified new norms empowering its Chairman to order search and seizure operations during investigations, while necessary safeguards have also been put in place to protect rights of affected persons.

These norms come a day after Sebi notified new regulations for greater oversight on Collective Investment Schemes, a stricter set of settlement procedures and a framework for providing refunds to small investors hit by irregularities in the markets.

The new norms providing Sebi with powers to conduct search and seizure have been finalised after taking into account suggestions from public and other stakeholders to draft regulations, which were issued in November 2013.

These regulations, which run into 24 pages, provide detailed procedures to be followed for issuance of warrants and execution of search and seizure orders, among others.

Besides, a necessary framework has been provided for the safeguards to be adopted during different stages of search and seizure and to protect the rights of those persons subjected to search and the obligations of the authorised persons.

These regulations would help Sebi exercise the powers of search and seizure at the time of investigation, harmonious with the rights of the persons who are subjected to search of their person and property, while pursuing the regulator's statutory mandate of investor protection, it said.

The new powers are aimed at making Sebi more effective in protecting investor interest and helping it to better regulate the market, including enforcement of securities laws.

The government had promulgated Securities Laws (Amendment) Second Ordinance, 2013 in September last conferring explicit powers on Sebi Chairman to authorise Investigating Authority or any other officer of Sebi to conduct search and seizure under the Sebi Act.

The Ordinance also provided that Sebi may make necessary regulations in relation to search and seizure.

As per the new regulations, Sebi's Investigating Officer would have to request the Sebi Chairman for one or more Warrants of Authority for execution of search and seizure of a person, an enterprise, building, place, vessel, vehicle or aircraft.

These warrants would need to be returned to Sebi Chairman after being executed fully along with the seizure memo, or even if not executed within the authorised time, if any.

Any search and seizure operation at a place of business or profession would need to be carried out during daytime (from 7 am to 6 pm), but a warrant can continue to be executed after daytime if the entry of the office is at daytime.

For vessel, vehicle, aircraft or place other than the dwelling place, the search can be initiated and continued at any time, while search at dwelling places would need to be initiated, resumed and completed in daytime, unless authorised to the contrary.

As per the new rules, an authorised officer would need to call upon two or more "independent and respectable" inhabitants of the locality in which the place to be searched is situated.

They can call people from any other locality if no such inhabitant of the said locality is available or is willing to be a witness to the search.

However, no witness to the search can be compelled to be part of any quasi-judicial proceeding under securities laws.

According to the norms if the place to be searched is "an apartment in actual occupancy of a woman, who according to custom does not appear in public", the authorised officer would have to give notice before search to such a woman.

"She is at liberty to withdraw and (they) shall afford her every reasonable facility for withdrawing and may then break open any outer or inner door or window of the apartment and enter it," the regulations said.

In regard to the rights of the persons being searched, the norms state that the occupant of the place being searched can see the warrant and obtain a copy of it, can verify the identity of the authorised officer and officials assisting him, to be present during the search and seizure operation and to have copy of document(s) seized or take extracts therefrom.

Such an occupant would also have rights to have a copy of any statement recorded during search and seizure and to put his own mark of identification on the document seized on recording the description of such mark of identification.

The authorised officer may seek services of any police officer or of any officer of the Central Government, or State Government or both, to assist him in execution of warrant.

According to the new norms, the market regulator could seize documents including drawings and paintings, videotapes and computerised material, among others.

Further, as per the guidelines, if ingress into building or place required to be searched cannot be obtained or no one is present at the property, an authorised officer has the right to break open into the building. Similar procedure could be applied to search of vessel, vehicle or an aircraft.

Besides, the authorised officer would have the power to search any person if there is "reason to suspect that such person has secreted about his person any such books of account or other document". If the person being searched is a female, the search could be made only by another female officer.

For searching computer, the norms lay out that an authorised officer could use any reasonable measures to access a computer system or other data storage device, that the person being searched has in physical possession.

A statement could be recorded by the authorised officer in the presence of two witnesses. In the case where there is no witness the statement would have to be video-graphed.

An intermediary found to be in non-compliance with rules liable for adjudication.