Finance Ministry tells Sebi to frame a policy on recovery proceedings

In a bid to tighten the noose around market offenders, the government has directed the Securities and Exchange Board of India (Sebi) to frame a policy on recovery proceedings.

The new rules could help the market regulator seize assets of violators even before a final judgment is passed by appellate bodies. 

Under the new policy, Sebi may also be able to recover penalties by seizure of bank accounts and other assets, if the accused fails to file an appeal within 45 days of the order passed by Sebi.

Currently, such recovery can only be made after the Supreme Court passes a judgment in the mater.  

Any order passed by Sebi first can be challenged before the Securities Appellate Tribunal (SAT) and later before the Supreme Court. The appeal process often takes several years. In the interim, Sebi is not able to recover any dues. In many cases, the accused siphons off the money or makes assets untraceable.

According to  the recent Sebi data, over 1,600 entities had defaulted on the imposed penalties worth over Rs 1.8 billion till March this year, and got away without making any payment.

The Centre want Sebi to identify such cases and segregate dues as “difficult to recover,” according to the provisions of the General Financial Rules, 2017. “There is no provision in the Sebi Act, or regulation to scale down or declare and segregate dues as non-recoverable,” the finance ministry said in the letter.

“It has been conveyed that Sebi may clearly segregate the dues which are remittable to the Consolidated Fund of India as per the statutes and other dues which are either remittable to Sebi’s general fund or as disgorgement amount to be returned to identified investors/remitted to Sebi’s investors protection fund,” the letter said.  

The new framework will ensure better recovery proceedings and launch prosecution under Section 24(2) of the Sebi Act, 1992 in special courts, it added.

It is further suggested that the new policy for recovery needs to be framed in a comprehensive manner and it should be on the lines of the Central Board of Direct Taxes (CBDT) provisions.

In 2017, the CBDT had circulated an action plan to allow the taxman to prosecute tax evaders without requiring an assessment. This was aimed at nabing serial tax dodgers to create a credible deterrence against the black money menace.

Legal experts say the proposal will send a strong signal to wrongdoers.