Sebi speeds up adjudicating proceedings to clear backlog of cases

Finance Bill 2017 has helped in fast-tracking of cases as it cleared the ambiguity regarding the discretionary powers of Sebi

The Securities and Exchange Board of India (Sebi) has begun hastening the passing of adjudicating orders to clear the backlog of cases that had piled up over the past couple of years, following uncertainty over its powers to impose discretionary penalties.

The market watchdog has also expanded its team of adjudicating officers (AOs) to 11, from five less than a year ago, said a person familiar with the matter.

“More AOs will help clear the backlog created on account of the Roofit matter. Additional AOs may also expedite the process of passing orders. But, to provide impetus to the whole process of disposal, the regulator needs to lay stress on settlement of proceedings as well,” said R S Loona, managing partner, Alliance Law.

The Supreme Court (SC), in the matter of Roofit Industries in November 2015, had said Sebi had no discretionary power under Section 15J of the Sebi Act, 1992, to reduce penalties imposed on companies. 

Following the judgment, penalties worth crores of rupees were levied by Sebi in various cases. This led to the Securities Appellate Tribunal remanding several matters back to the market regulator and quite a few appeals being withdrawn by appellants fearing higher penalties.

Last year, Sebi itself had filed for a review before the apex court on the Roofit judgment. During its pendency, a two-member Bench of the SC had differed with Roofit judgment in the matter of Siddharth Chaturvedi versus Sebi. In its order of March 2016 in this case, the Bench had referred the matter to a three-member SC Bench, creating further ambiguity regarding imposition of penalties.

Earlier this year, the Finance Bill, 2017 inserted an explanation that did away with ambiguity regarding Sebi’s discretionary powers in deciding the amount of penalty on companies.

The backlog of cases is mostly for offences committed between October 2002 and September 2014, as the penal provisions of the Sebi Act were amended with effect from September 2014.

According to experts, Sebi should look at further increasing the number of AOs. They could also disclose the date of showcause notice, in addition to the hearing dates on their website, so as to ascertain time taken in adjudication proceedings.

“There are times when parties drag the proceedings using dilatory tactics, while there are also instances when AOs themselves take time, due to inertia or involvement of high-profile people. In addition to augmenting its administrative infrastructure, there should be an internal mechanism to track the time taken to issue a showcause notice and thereafter pass an order,” said Sumit Agrawal, partner, Suvan Law Advisors.

Experts also said Sebi should try to focus on serious violations, particularly the ones having market-wide ramifications, rather than minor infractions.

“Non-compliance of certain non-critical disclosures could be dealt with by levying standard penalties, instead of going for full-fledged adjudicating proceedings or levying heavy penalties. Some of this work could be delegated to the exchanges as well,” said Alliance Law’s Loona.

The Roofit Episode

• In the matter of Roofit Industries in Nov 2015, SC ruled that Sebi had no discretionary powers to decide on penalties 
• Following judgment, Sebi started levying flat/maximum penalties 
• Sebi asked for a review of SC’s decision after being criticised for levying high penalties
• In another case, in March 2015, a division Bench of SC differed with Roofit judgment
• Matter referred to a larger SC Bench
• SAT started sending several matters back to Sebi, reportedly because of maximum penalties in all cases
• An explanation in the Finance Bill, 2017 has given back Sebi its discretionary powers in terms of amount of penalty to be imposed  
• This will provide relief for alleged offences committed between Oct 2002 and Sep 2014