Bill cleared to empower Sebi to deal with Ponzi schemes

The Union Cabinet cleared the Securities Laws (Amendment) Bill on Thursday, to empower the Securities & Exchange Board of India (Sebi) to effectively check illegal deposit taking and Ponzi schemes, with a corpus of at least Rs 100 crore.

“The Cabinet Committee on Economic Affairs has cleared the Bill,” a finance ministry official said after the meeting. It will be introduced in Parliament and replace an earlier ordinance to this effect.

In March, the President had re-promulgated the ordinance. It had strengthened the enforcement powers of Sebi, while allowing it to conduct searches and seizures.

Officials said Sebi wanted to introduce a concept of minimum penalty. “That has been incorporated. The rest is mainly the ordinance. But, for exact details, we will have to wait a bit.”

Sebi Chairman U K Sinha said it would send a strong signal to those defrauding gullible investors with illegal schemes. He expressed hope the Bill would get approved in the current session of Parliament.

“I have not formally seen what has been approved by the cabinet or what was the proposal. But if it is on the lines approved in the earlier ordinance, then there are two-three most important things. The first is unauthorised deposit collecting investment schemes, the second relates to the area of Sebi's ability to recover the penalties and the third would pertain to special courts where people can be prosecuted, if they have violated the regulator's norms,” Sinha told reporters in Chennai.

The Bill seeks to give Sebi sweeping powers like attachment of properties, launch of recovery proceedings, seeking call data records to investigate cases and ordering search and seizure against manipulators and fraudsters. It has checks and balances to the powers of Sebi. It has also introduced some additional amendments based on the recommendations of Parliament’s standing committee on finance and additional proposals from Sebi.

The additional amendments provided that the Sebi chairman should record the reasons in writing while issuing an order for search and seizure, and that the authorised officer may requisition the services of a police officer or any officer of the central government to assist him in these.

The Securities Laws (Amendment) Ordinance was first promulgated on July 18, 2013. It had to be promulgated thrice, as it could not be passed by Parliament. The move came after the chit fund scam of the Saradha group was exposed in Kolkata in 2013.

“It will give a signal to the people who are in the habit of raising unauthorised money from gullible investors that Parliament does not approve of it,” Sinha said.

To tackle Ponzi schemes being floated as Collective Investment Schemes (CIS), any money collection of Rs 100 crore or more will be classified as a CIS and thus would fall under Sebi’s domain.

This will bring chit funds with a corpus of more than Rs 100 crore under Sebi’s ambit; these were earlier exempt.