More options for settlement under new Sebi norms

The market regulator has settled 60 cases through compounding this year, compared to just 18 last year

Settlement of violations between the accused and market regulator Securities and Exchange Board of India (Sebi) through ‘compounding’ has received a significant boost after recent change of norms.

So far this year, Sebi has settled 60 cases through compounding, taking the tally to 120. Under the settlement process, an alleged wrongdoer has to pay compounding charges to Sebi to avoid prosecution.

Earlier this year, Sebi had issued simplified norms to allow the accused facing charges of “serious violations” in capital markets to seek settlement by paying for the losses suffered by investors.

“The 2014 Settlement Regulations were rigorous. In the first instance, they excluded from the scope of settlement a number of serious offences, which had a wide impact on the market. Sebi has recently clarified that offences have a market-wide impact when they affect the securities market as a whole and not just one listed security and its investors,” said Akila Agrawal, partner, Shardul Amarchad Mangaldas. “The change is clearly owing to the increased administrative burden in adjudication and in treating all serious offences under one category.”

Under securities laws, Sebi is empowered to file prosecution (a case before a criminal court) for two categories – when someone has violated provisions of Sebi regulations or when a person has not paid penalty to Sebi. Under the second category, Sebi does not have to get the application for compounding screened from a high-powered advisory committee.

The new norms have provided clarity on the cases that can be settled through compounding or consent route, which was absent earlier. Compounding of offence allows the accused to avoid a lengthy process of criminal prosecution, saving time and cost. Consent mechanism is typically for settling administrative or civil proceedings between a regulator and a person who may prima facie be found to have violated securities laws.

“Sebi’s prosecution cell must be complemented for its pragmatic approach. Such efforts may also bring down the pendency of Sebi’s criminal cases before special courts in future. In a large number of cases where special courts are issuing warrants against the accused, Sebi is compounding the matters while agreeing to take a sum which would be equal to penalty amount along with 12 per cent interest and legal process charges,” said Sumit Agrawal, ex-Sebi official and founder, Suvan Law Advisors.