In a stern warning to corporates seeking to settle their capital market crimes, Sebi has said anyone committing a serious offence must face the axe and any settlement plea would not be entertained in such cases.
In a stern warning to corporates seeking to settle their capital market crimes, regulator Sebi has said anyone committing a serious offence must face the axe and any settlement plea would not be entertained in such cases, irrespective of the size and stature of the offender.
The Securities and Exchange Board of India (Sebi), which regulates capital markets and is also mandated to ensure good corporate governance at over 5,000 listed companies, often gets criticised by corporates for its action against large entities found to have violated the norms.
Undeterred by such criticism, Sebi has taken to task many large corporates and financial market players for various kinds of wrongdoings committed by them.
“Seriousness of the crime is the yardstick for our action, not the size of the corporate. We are following the same system that is followed in the criminal law justice in the country,” Sebi chairman U K Sinha said.
Giving an example, he said a crime involving theft of a watch can be probably compounded, but this can not be the case for a murder.
“Serious crimes can not be compounded, the smaller crimes can be. We have followed the same approach,” Sinha told PTI in an interview.
Asked whether Sebi can evolve a system where serious crimes would lead to stricter action, irrespective of the size of the corporate committing the crime, Sinha said, “This is what Sebi is doing.”
He also said that Sebi has made sure that there is no scope of any discretion when an officer is probing a case or is passing an order.
“There has always been a perception that every organisation and every government official wants a lot of discretion so that they can favour somebody or harm somebody.
“Our effort at Sebi has been to remove this discretion and make things crystal clear for the persons outside Sebi. We have put in place mathematic formula to determine the amount of the penalty and the settlement charges, so that there is no discretion involved,” Sinha said.
Giving example of Sebi’s consent settlement guidelines, the Sebi chief said the regulator put in place a new set of rules in this regard in 2012 under which a serious offence can not be settled at all.
“Broadly, we have said that there are two kinds of offences – some are very serious and some are not so serious in nature. We have said that a crime which is serious in nature, it can never be consented. You have to suffer, pay the penalty and face the consequences,” Sinha said.
“You can not commit a major offence and still get a settlement on it and walk out of this room as if nothing has happened,” he added.
“Earlier, this was not the case, as one can commit any kind of offence and still get away with a settlement. Now, consent can not happen in serious cases, as we have very clearly outlined a framework specifying the cases where a consent settlement can not happen.
“Insider trading is one example and front running in mutual funds is another case which can not be settled. For market manipulation also, you have to suffer,” Sinha said.
He further said that some people earlier had a doubt whether Sebi’s consent settlement guidelines were legally sustainable as they were issued through a circular.
“So when the Sebi Act was amended last year, we requested the government and they have put it (settlement) there. So our consent mechanism has now got statutory backing by Parliament and so we have now framed regulations.
“What we framed as a circular first, has now become a regulation because the government has come out with the guidelines in this regard in the amended Sebi Act,” he said.
UK Sinha said measures have also been put in place to remove the discretion from the Sebi officer’s mind in cases of consent.
“So, if you have committed an offence and if it is fit for settlement, then the settlement amount will be decided mathematically. There is no scope for he or she applying the mind or anybody negotiating the amount.
“This was possible earlier. Now the amount is decided mathematically. You take it or leave it. If you have committed a smaller offence, you are fit for a settlement. But, if you are not ready to pay the settlement amount, then you will have to suffer and pay the penalty.
“Everything has been made very very crystal clear now. That has brought in a great amount of trust in the Indian regulatory system,” he added.