Get it right this time

Updated: Jan 10 2002, 05:30am hrs
In a few weeks from now, the Securities and Exchange Boards chief D R Mehta will be superannuating after a very eventful innings. Many analysts/journalists, including this one, have been very harsh on Mehta, charging him with inaction, or not enough action, in most cases whether it was that of the vanishing companies investigation, or even the great Ketan Parekh bull run. And each time he was attacked, Mehta would take up the cudgels, and trot out impressive statistics on how no previous Sebi chief had ever taken as much action as he had, of the brokers hed penalised, and so on.

Lets examine Mehtas arguments theres no denying the fact that Sebi does remain woefully ill-equipped to deal with the machinations of the market, it has precious few powers, and is awfully under-staffed even today. As compared to the US Securities and Exchange Commissions 800 investigators, for instance, Sebi has just 50 officers in its investigation wing to deal with 7,000 listed firms and 15,000 market intermediaries.

Perhaps the best place to begin about the kind of powers that Sebi does or doesnt have, is in a recent dialogue between it and the Department of Company Affairs. During the discussion between the various regulators on the various companies alleged to have been funding KP, the DCA wrote to Sebi on June 7 saying it should go ahead with the investigations as it had the power to probe under Section 209A of the Companies Act. On June 11, however, Sebi replied saying that while it did have powers under Section 209A, these related to (hold your breath) just matters listed under Section 55A, so the DCA should probe the case as only it had the power to do so. On June 21, the DCA wrote back saying Sebi could do a probe under Section 77 of the Companies Act as that was within its purview well, Section 77 relates to buyback of shares by a company! We can argue back and forth about whether it is indeed possible for Sebi to use some clause in Section 77 or 55A or even 22CV (Im sure there is such a section) to conduct its investigations, but then why make it so complicated Why not just give Sebi the powers

The complete contempt with which people like Ketan or Tehelka financier Shankar Sharma have dealt with Sebis summons/notices in most cases, theyve simply refused to cooperate is also proof of just how much power Sebi really has, since there is no serious penalty for not complying with its summons. Nor does Sebi have the power to attach the properties of defaulters/offenders the maximum penalty it can impose is a princely Rs five lakh. How much deterrent value does it have if the defaulters have decamped with hundreds of crore of investors funds Sebis powers to debar directors/companies from accessing the capital market under Section 11B of the Sebi Act were struck down by the Appellate Tribunal in the Sterlite case Sebi has appealed against this in the high court. Nor does Sebi have the powers of search and seizure (the power to carry out surprise raids), and then impound documents pending investigations.

Another serious problem that, unfortunately, always seems to get dumped at Sebis doorstep, is that of slow justice. The most-cited case, of course, is that of the late Harshad Mehta. Though his scam took place in 1992, there are still around 600-odd civil cases sill pending and of the 72 chargesheets filed by the CBI, only four have really gone anywhere. Thereve been only four convictions so far, and very minor ones at that. Hiten Dalal, one of the scam-accused, was sentenced to a years imprisonment only in July last year; the second case involved just Rs 11,000 and the accused was acquitted; the third led to Hiten Dalal getting a 7-year sentence but this has been stayed. Harshad himself was convicted in just one case, a Rs 38-crore one involving Maruti Udyog.

But why blame Sebi for these delays of the judicial system Unlike the US SEC, or even the tax tribunals in India, Sebi does not have the power to entertain plea bargains it is this power, for instance, that allowed the SEC to impose a huge fine on scamsters like Mike Milken and dispose off cases in record time. If Sebi had this power, its possible, Harshad Mehta could have been fined, say Rs 1,000 crore in 1992 itself, and the case could have been finished there and then.

Again, we can argue that if he didnt have enough powers, Mehta should have been fighting for them, or that he should have resigned when he didnt get them. We can argue that Sebi may not have these powers, but it could coordinate with other agencies such as the DCA and the Reserve Bank to get its work done. But leave that aside, because for every argument theres a counter. Why not just fix this so that the new chief can do his job better