BS Number Wise: How good is Sebi at recovering money?

The value of notices Sebi has sent out since getting recovery powers in 2013 is more than twice Mumbai's annual municipal budget

The Securities Appellate Tribunal recently granted an interim say on the Securities and Exchange Board of India's (Sebi's) order requiring Franklin Templeton Asset Management (India) to refund over Rs. 500 crores over losses because of ‘mismanagement' of debt schemes. While the stay is an interim one, an analysis of Sebi's recovery efforts shows some collection difficulties.

The value of notices it has sent out since getting recovery powers in 2013 is more than twice Mumbai's annual municipal budget. The latter is often referred to as India's richest civic body.  The notices worth Rs 81,085.7 crore cover collective investment schemes, deemed public issues and other matters. It has managed to recover a sum total of Rs.887.04 crore. This would mean that around 98.9 per cent of the recovery notices sent over the years remain on paper (see chart 1).

The regulator has sent out an increasing number of recovery notices. There were 64 notices sent during 2013-14. This has risen to 853 in 2019-20. The rising number of notices sent has also meant that pending notices have ballooned to record levels. There are 1,948 pending as per the last available figures. This has meant that for every notice sent out last year, twice as many remained pending for effective enforcement (see chart 2).

The regulator has been trying to effect changes in the current regulations which include outdated means of recovery such as beating drums. It has asked the government's permission for amendments which would allow better ways of selling off attached assets. Another issue is the problem of parallel proceedings. Many entities which are under Sebi scrutiny are also facing action from other regulators. There are also some entities which cannot be traced at all. The regulator has sought a ‘difficult to recover' tag in such instances.

There is also the issue of recovery certificates which are done away with by the regulator. An analysis of annual report data shows that more recoveries are now being cancelled than before. The number of such cancellations more than doubled in 2019-20 to 76, from 32 in the previous year. Cancellations as a proportion of completed cases now touch 40.6 per cent (see chart 3).

The regulator cancels recovery certificates for multiple reasons. This can include instances where a company is under liquidation. It can also be because of adverse orders from higher forums like the Securities Appellate Tribunal against regulatory action. In either instance, the surge in cancellations, the high number of pending recovery notices and paltry amounts collected may point to the need for an overhaul in Sebi's recovery processes.  

The regulator did not reply to a request for comment.