New Sebi framework to categorise offences to be dealt by consent

According to a person privy to the development, the new framework would make the proceedings and the disposal of the case much more transparent compared to the current norms that have come under heavy criticism from various segments of market participants.

?The new regulations clearly lay down the kind of offences that can be settled through consent and also the penalty that any violation would attract,? said a person with direct knowledge of the matter. ?The norms would not leave any room for instances wherein the same kind of offence attracts different penalties. Even the offenders will be able to calculate the penalty,? he explained.

Incidentally, on April 13, Sebi chairman U K Sinha had said that the new consent rules will be announced in ?another four weeks?. Securities law experts, meanwhile, say that the regulator can adopt the ‘tariff card’ approach while dealing with technical violations like non-disclosures. Such an approach is also used by other agencies, including the Registrar of Companies (RoC), they add.

?The yardstick applied to technical violations may be different from other violations of certain regulations covering insider trading and price manipulation,? says PR Ramesh, senior consultant, Economic Laws Practice (ELP). ?For instance, in the case of technical violations like non-filing of disclosure or reports, per day penalties are possible and a ‘tariff card’ approach can be taken,? he added.

The consent order mechanism, which was introduced by Sebi in 2007, refers to a practice of negotiations while settling civil or administrative matters against the wrong-doers. Based on negotiations and the kind of offence, the regulator either imposes a monetary penalty or suspends/cancels the registration. In the past, the regulator has imposed penalties ranging from a few lakhs to R50 crore while disposing matters through consent.

The criticism, however, has been that some of the bigger well-known names are able to get away with lenient consent terms, while the smaller entities shell out relatively higher penalties for a similar offence.

?Sebi will definitely stipulate stringent standards of evaluation for other violations depending on the gravity of the offence, whether the person is a habitual offender, the quantum of gains or loss avoided and the loss caused to the public investors etc,? says Ramesh.

Lawyers say that the objective of the new norms should be that the consent terms act as a deterrent and, so, while broad guidelines may be laid down, the quantum of penalty may depend on case-to -case seriousness.