Taking advantage of the legislative powers given to a financial sector regulator for the first time in India, the Securities and Exchange Board of India (Sebi) has attached Rs 1,544 crore from bank accounts of people and companies who have been penalised for frauds, in the last one month.
Among the bank accounts that have been seized are those indicted for the IPO fraud of 2005 and the Pyramid Saimira case in 2012. In the last one month, Sebi has served orders to various banks to attach the accounts of those who have not paid fines for stock market frauds.
Earlier, Sebi had no powers to enforce such orders. But these powers were conferred to Sebi under the Securities Laws (Amendment) Second Ordinance, 2013, issued by the government in September.
The ordinance allows Sebi “explicit powers to order disgorgement of unfair gains by attaching bank accounts and property, and also to arrest and detain a person for failure to comply with disgorgement orders or pay any monetary penalty”.
In contrast to the equivalent provisions of the Companies Act 2013, the regulator does not need to approach a court for ordering such attachments.
While the first ordinance lapsed as it could not be cleared in the monsoon session, the second ordinance is set to be tabled for passage during the winter session.
In a regulatory environment where convictions for a white collar crime are rare, Sebi’s steps are unprecedented.
Sebi has for long complained that its ability to prosecute stock market offenders effectively is hampered as it cannot enforce payment of fines by rogue entities. The new powers, stronger than those provided under the Code of Criminal Procedure, 1973, effectively redraw the financial sector regulatory environment in India.