Sebi gets power to raid, arrest defaulters

Sebi can now seek old-case details from other regulators within India and abroad

The government has allowed the Securities and Exchange Board of India (Sebi) to pass orders such as those on search and seizure, attachment of properties and arrest and detention of defaulters, as well as pass disgorgement directions to recover wrongful gains made in contravention of laws.

The government has also allowed the market regulator to seek information from other regulators within India and abroad with retrospective effect, paving way for collection of details pertaining to cases pending for over 15 years now.

To tackle the growing menace of ponzi schemes being floated as collective investment schemes (CIS), the rules have also been amended to classify any money collection of Rs 100 crore or more as CIS operation. Sebi has been given powers to crack down on illegal investment schemes floated by individuals as well, as against companies only as of now. However, all government-notified schemes would be out of the CIS framework.

The changes are part of as many as 22 amendments made by the government in three main Acts governing Sebi and its operations — the Sebi Act, the Securities Contracts Regulation Act (SCRA) and the Depositories Act — through a 16-page Ordinance.

Among others, Sebi has also been given powers to pass disgorgement orders for amount equivalent to wrongful gains or to losses averted by contravention of regulations. Besides, the regulator can now enter and search buildings, places, vessels, vehicles and aircraft of defaulters. Its officers can also break open the lock of any door, box, locker, safe almirah, etc to get information from suspected entities.

At the same time, the defaulters can seek settlement of pending cases with Sebi with retrospective effect from April 20, 2012.

The powers to seek information from other domestic and foreign regulators have been made effective retrospectively from March 6, 1998.

For seeking information from outside the country, Sebi can enter into an arrangement, agreement or understanding with relevant foreign authorities with the prior approval of the central government.

At the same time, Sebi can now ask for information or records from any person, banks, authorities, boards or corporation, if the regulator is of the opinion that such details could be relevant to any investigation or inquiry being undertaken by it.

For speedy trial of offences under various Sebi regulations, the Ordinance also provides for setting up of “as many special courts as may be necessary” by the central government. Such courts would consist of a single judge to be appointed by the central government with concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working. Till the time a Special Court is established, any offences committed under Sebi Acts would be tried by a Session Court.

If a person fails to pay the penalty imposed by Sebi or fails to comply with any direction for refund of money or any disgorgement orders, the recovery officer appointed by Sebi can proceed to recover such an amount.