New rules make consent settlement with Sebi tougher

With a tightened set of rules in place for settling cases being probed by Sebi for possible violations, the ratio of pleas being rejected for such settlements went up sharply during the last fiscal.

The Securities and Exchange Board of India (Sebi) rejected an estimated 174 applications for settlement of ongoing proceedings against the concerned entities under its 'consent mechanism' during 2012-13.

During the same period, Sebi is believed to have accepted 52 such cases for consent settlements.

Under this mechanism, the entities facing Sebi proceedings can seek settlement of the case after payment of certain charges, along with legal and administrative fees, without admission or denial of guilt.

The mechanism was put in place since the fiscal year 2007-08, but Sebi overhauled its consent regulations in May last year by making it tougher for cases of serious violations to be settled through this route.

With a new set of rules in place for most part of the last fiscal, the number of rejected pleas was much higher than the total number of cases approved for settlement through this mechanism, shows an analysis of such orders passed by Sebi.

Going by these figures, Sebi rejected more than three consent pleas in the last fiscal for each case of settlement.

     
The number of rejected applications in a full financial year was higher only once before, when a total of 237 pleas were rejected and 171 approved during the fiscal year 2010-11.

However, the rejection ratio was lower at less than two for every one settlement in 2010-11, when compared to 2012-13.

     
The number of accepted pleas was higher in the remaining four financial years -- 2011-12, 2009-10, 2008-09 and 2007-08, since the consent system was introduced on April 20, 2007.

Sebi collected little over Rs 14 crore as settlement and other charges from various entities through its consent mechanism in fiscal 2012-13, against a total of Rs 16.50 crore collected in the previous fiscal 2011-12.

Sebi had introduced the consent system to cut down on its costs, time and efforts in taking up the enforcement actions.

     
Since 2007-08, Sebi has collected about Rs 220 crore through consent settlement of more than 1,200 cases.

     
In May last year, Sebi had tightened its regulations for settlement wherein certain defaults such as those relating to insider trading, front running, failure to make an open offer, redress investor grievances and respond to the regulator's summons were excluded from the consent process.

The regulator had also decided to not to entertain any such applications before the completion of a probe.

Since January this year, Sebi has been making public the names of the rejected applications.

     
In January alone the regulator had rejected 149 consent applications, including that of 16 entities related to Reliance Industries.