Sebi tweaks adjudication process to ensure fairness

Regulatory enforcement and adjudication processes undergo significant changes

Capital market regulator Securities and Exchange Board of India (Sebi) has tweaked its adjudication process to ensure more fairness and effectiveness.

To ensure judicial discipline, Sebi, a quasi-judicial body, has decided that separate departments will conduct investigation and decide on punishment.

For recent, the recent order against realty major DLF was investigated by Sebi's corporate finance department, which is headed by whole time member Prashant Saran. While, the final order was the passed by whole time member Rajiv Agarwal, who is in charge of the market regulation department.

According to sources, Sebi's enforcement and adjudication processes have undergone several changes based on the recommendations made by international consultant Oliver Wyman. The consultant was roped in by Sebi in 2012 to assess its performance and to advise on organisational restructuring.

"The decision to separate adjudication and investigation is to ensure fairness and avoid conflict of interest," said a Sebi source.

Welcoming the changes, RS Loona, managing partner, Alliance Corporate Lawyers said the prosecutor and the judge cannot be the same.

"Basic principle of law is that prosecutor should not be judge in his own cause. Hence, in the interest of fair justice, officers involved in investigation should remain away from the process of quasi-judicial proceedings. Sebi has been endeavoring to put in place such practice though till recently people from its investigation department have been involved in decision making process by adjudicating officers and members," said Loona, who has worked at Sebi as an executive director.

Another important cases where the similar practice was followed are the recent orders against BSE and the National Stock Exchange (NSE), where the regulator had censured the two exchanges for lapses. The orders were passed by Saran, while the cases was probed by Agarwal's market regulation division.

The corporate finance department monitors compliances by listed entities in terms of listing and corporate restructuring. The market regulation department overlooks operations of exchanges, depositories, clearing corporations and intermediaries.

"It is essentially a matter of one department who goes into fact-finding and other department who goes into adjudication. A different department passing the order brings in greater amount of objectivity and neutrality while dealing with the company," said Sandeep Parekh, Founder, Finsec Law Advisors.

Oliver Wyman, who had submitted its report to the market regulator in December last year, had also suggested having a fixed and significantly reduced turnaround time for every step of enforcement.

Sebi has also set up a robust data management system to store information on all previous cases. The move will help Sebi in future proceedings against violators.