House clears Sebi Bill on Ponzi schemes

Sebi can't tap phones but may seek call data records; can conduct search & seizure ops after court permission

The Securities and Exchange Board of India (Sebi) will not have any authority to tap telephones but may seek call data records for investigation of Ponzi schemes under the new Bill, passed in the Parliament on Tuesday.

“The Act has been fine-tuned and new architecture with a wider language has been introduced... Sebi can call for information on call data records (but) the power to bug or intercept is not given to it,” Finance Minister Arun  Jaitley said in reply to a debate on the Securities Laws (amendment) Bill in the Rajya Sabha.

The house later passed the Bill, already voted through in the Lok Sabha. This paves the way for notification of the new legislation, to amend the relevant Sebi Acts.

The bill was brought in the backdrop of tens of thousands of small investors being duped into by fraudulent investment schemes, such as in the Saradha scam. The new law will empower Sebi investigators to conduct searches and seek information from suspected entities, both within and outside the country. However, any search operation  first needs approval of a designated court in Mumbai, where Sebi is headquartered.

In the Ordinance promulgated by the previous UPA government, Sebi was vested with powers to conduct search and seizure operations, without prior permission.

“This is too arbitrary a power... Therefore, this power had to be tapered down,” the minister said.

The Act will also cover multi-level marketing schemes with a corpus of Rs 100 crore or more.

The Minister also said he tried to specify the jurisdiction of Sebi and the Companies Act in such situations. “You cannot have an anarchic situation where two regulators deal with one space. What comes under the Companies Act should be exempted from (the) Sebi Act... There is no overlapping of jurisdiction,” he said.

The Bill was cleared more than a year after the first ordinance was promulgated by the previous government, in July 2013, to grant additional powers to Sebi to take on fraudsters and other defaulters. It was promulgated for a second time in September last year, followed by a third ordinance in January this year, as a bill could not be passed in Parliament at that time. The third ordinance also lapsed, late last month, leaving Sebi without these extra powers, which it had already used in nearly 1,500 cases.