Bill to empower Sebi to check ponzi schemes tabled in LS

 

The government today tabled a bill in the Lok Sabha to empower market regulator Sebi to deal with the menace of ponzi schemes, but the legislation curtailed its powers related to search and seizures compared to those provided in the ordinance that it replaced.

The ordinance, issued thrice, had provided for empowering the Securities and Exchange Board of India (SEBI) to seize books, registers, other documents and records of errant companies, but the Securities Laws (Amendment) Bill, 2014 seeks to establish special courts in Mumbai whose permission must be sought by the market regulator in this respect.

The Magistrate or Judge of such designated courts in Mumbai -- as notified by the central government -- would have jurisdiction to issue an order for the seizure of books, registers, other documents and records.

There were demands that the greater powers with Sebi need to be balanced with necessary safeguards.

Otherwise, the bill seeks to empower Sebi to crack down on unregulated investment or ponzi schemes and seek information from an entity. The Bill provides that any pooling of funds in any unregistered scheme or arrangement, having a corpus of at least Rs 100 crore shall be deemed to be a collective investment scheme.

It retained many powers given to Sebi through ordinances, including launch of recovery proceedings, attachment and sale of defaulters' properties and assets, and seeking of call data records and other information from any person, company, bank, authority or organisation during its probes.

“The Bill proposes various amendments which inter-alia include empowering Sebi to call for relevant information and records from any person. There is a provision for disgorgement,” the finance ministry said in a press statement.

To protect the interests of investors and to ensure orderly development of securities markets, it has become necessary to enhance the powers of the Board, the government said.

Currently, the Sebi Act prescribes penalties to be imposed for various offences. However, these sections only provide one level of penalty with no minimum level or range and without giving any discretion to the Adjudicating Officers. Amendment to these Sections are included in the bill by prescribing minimum penalty in the range of Rs one lakh to Rs ten lakh to be imposed for each violation.

The Bill was introduced in the Lok Sabha by Minister of State for Finance Nirmala Sitharaman as Finance Minister Arun Jaitley was unwell and could not attend the House. The bill will amend the SEBI Act 1992 and corresponding changes under Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996.

Earlier, the Cabinet in its meeting held on July 24 had given its approval to the Bill.

As large number of cases was reported from all over the country on unregulated deposit taking and ponzi schemes, the government had promulgated the Securities Laws (Amendment) Ordinance, 2013 on July 18, 2013 to empower Sebi to initiate action against such schemes.

Subsequently, the Securities Laws (Amendment) Bill 2013 was introduced in the Lok Sabha on August 12, 2013. As the First Ordinance would have lapsed, the Securities Laws (Amendment) Second Ordinance, 2013 was promulgated on September 16, 2013. The second Ordinance ceased to operate on January 16, 2014. The Securities Laws (Amendment) Ordinance, 2014 was promulgated on March 28, 2014. It lapsed on July 18, 2014, the ministry said..