Sebi's need for more firepower

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Within a week, the Securities and Exchange Board of India (Sebi) has taken a double body blow, with two major orders struck down by appellate authorities. First, the Securities Appellate Tribunal’s move to overturn the order against realty major DLF for alleged disclosure rule violations in its Initial Public Offer of equity. Then, last week, Business Standard had reported that the regulator’s first-ever arrest order had been quashed by the Bombay High Court.

Sebi’s orders have had a varied fate. Decisions on regulated entities such as the Saradha group, Bank of Rajasthan and Multi Commodity Exchange have become a part of Central Bureau of Investigation probes. And, whatever action it has taken against the alleged violators are not standing the test of judicial scrutiny.

There's a third category of cases, such as the Reliance Industries case of alleged illegal gains in the sale of Reliance Petroleum shares, which is yet to be decided nearly eight years after the event.

The DLF case itself was decided by Sebi after a seven-year process. A defeat at the first hurdle raises questions on the capacity of Sebi’s legal arsenal, qualitative and quantitative, people-wise and process-wise. And, even political interference won’t come as an excuse for the loss at the high court.

In the days when the regulator was pitching for wider powers to handle illegal schemes and wilful defaulters who do not comply with its orders, this column had underlined the need to be able to use the available powers efficiently. What is the point of new powers if these are not used in a manner that stands court scrutiny?

Sebi has passed several orders with the new powers against many illegal schemes over the past year. A PTI report put the amount involved at about Rs 13,000 crore and the number of these cases are said to be over a hundred. Not very apparent at present but it is very likely that lawyers around the country are busy preparing appeals and case files are likely to be queuing in the high courts and at the SAT.

Cases are not over till they are finally over, is the experience in the one involving Sahara’s illegal debentures. Under bizarre circumstances, the Sahara case has continued to linger in courts nearly three years after the appeal processes were completed and the final order was passed by the Supreme Court. Some officials from Sebi attend every hearing. They have to assist lawyers, give them instructions and the background whenever necessary.

Thus, Sebi needs an army of experts to investigate, adjudicate, write good orders and defend these in courts. Therefore, it needs to build capacity. Sebi is the best judge of the numbers it would need in the next five years.

However, with new responsibilities such as the regulation of commodity markets and international financial centres coming its way, it doesn’t need a rocket scientist to figure out that this number is large and substantially higher than the present tally. To attract and sustain such talent, Sebi needs more of talismanic leaders, whose legal acumen matches their courage to stand up to the bad boys, especially the larger ones.