In 2007, SEBI issued a Circular
containing guidelines for consent orders and composition of offences on matters
involving violations of securities laws. This was also accompanied by a
detailed set of FAQs.
containing guidelines for consent orders and composition of offences on matters
involving violations of securities laws. This was also accompanied by a
detailed set of FAQs.
Since then, SEBI has issued several consent orders,
including in some high profile cases. Due to criticism that the consent order
mechanism was operated in an ad hoc manner
and lacked transparency (matters which were also briefly
discussed on this Blog), SEBI undertook the task of streamlining the
system. Consequently, SEBI has, “[o]n the basis of experience gained and with
the purpose of providing more clarity on its scope and applicability”, modified
the Circular of 2007. A press release containing the salient features of the
amended Circular is contained here.
including in some high profile cases. Due to criticism that the consent order
mechanism was operated in an ad hoc manner
and lacked transparency (matters which were also briefly
discussed on this Blog), SEBI undertook the task of streamlining the
system. Consequently, SEBI has, “[o]n the basis of experience gained and with
the purpose of providing more clarity on its scope and applicability”, modified
the Circular of 2007. A press release containing the salient features of the
amended Circular is contained here.
The most significant change is that SEBI has introduced
several exclusions to the operation of the consent order process. In other
words, the consent order mechanism will not be available in case the violations
involve specific categories, including the following:
several exclusions to the operation of the consent order process. In other
words, the consent order mechanism will not be available in case the violations
involve specific categories, including the following:
– Insider trading;
– Serious fraudulent and unfair trading practices;
– Failure to make an open offer under the takeover
regulations;
regulations;
– Front running;
– Manipulation of net asset value or other serious
mutual fund defaults;
mutual fund defaults;
– Failure to address investor grievances; and
– Failure to make disclosures in offer documents
that materially affect the rights of investors.
that materially affect the rights of investors.
There is also a residual category where the applicant
can be denied the consent order mechanism for any other type of default if that
applicant is non-compliant with any order passed by SEBI against it.
can be denied the consent order mechanism for any other type of default if that
applicant is non-compliant with any order passed by SEBI against it.
It appears that SEBI’s objective is to exclude serious
types of violations listed above at the outset rather than to leave the
discretion to the various authorities managing the consent order process. This
introduces objectivity and transparency in the process, which were arguably
missing in the erstwhile guidelines. However, this also has the effect of
substantially limiting the scope of the consent order mechanism to minor
offences that are technical in nature and do not substantially affect investor
rights. In such circumstances, alleged violators in serious cases may be unable
to resort to the consent order mechanism and will be compelled to go through
the entire enforcement process. SEBI has nevertheless retained some leeway by providing
that “[n]otwithstanding anything contained in this circular, based on the facts
and circumstances of the case, the [High Powered Advisory Committee]/Panel of [Whole
Time Members] may settle any of the defaults listed above”. In the ultimate
analysis, the above serious violations are not altogether excluded absolutely,
but the authorities under the consent order process will have to exercise
discretion and justify the existence of circumstances as to why a settlement
may be permitted in a given case where such serious violation is involved.
types of violations listed above at the outset rather than to leave the
discretion to the various authorities managing the consent order process. This
introduces objectivity and transparency in the process, which were arguably
missing in the erstwhile guidelines. However, this also has the effect of
substantially limiting the scope of the consent order mechanism to minor
offences that are technical in nature and do not substantially affect investor
rights. In such circumstances, alleged violators in serious cases may be unable
to resort to the consent order mechanism and will be compelled to go through
the entire enforcement process. SEBI has nevertheless retained some leeway by providing
that “[n]otwithstanding anything contained in this circular, based on the facts
and circumstances of the case, the [High Powered Advisory Committee]/Panel of [Whole
Time Members] may settle any of the defaults listed above”. In the ultimate
analysis, the above serious violations are not altogether excluded absolutely,
but the authorities under the consent order process will have to exercise
discretion and justify the existence of circumstances as to why a settlement
may be permitted in a given case where such serious violation is involved.
The process has been made stringent in other ways as
well. For example, if a violation has been made within two years from the date
of any consent order, then a consent application may not be entertained for
such violation. Further, an applicant who has already obtained two consent
orders may not apply for another within three years from the last order. There
is also a time limit for filing consent applications, which is 60 days from the
service of show cause notice to the applicant.
well. For example, if a violation has been made within two years from the date
of any consent order, then a consent application may not be entertained for
such violation. Further, an applicant who has already obtained two consent
orders may not apply for another within three years from the last order. There
is also a time limit for filing consent applications, which is 60 days from the
service of show cause notice to the applicant.
While the reforms will have the effect of streamlining the process and making
it more transparent, it is also likely to substantially reduce the availability
of the process to persons who have been charged with securities law violations.
The key outcome of the reforms appears to be that the consent order process
will now be largely available for minor technical violations, but not for the
more serious ones.
It is very Good but Still the Brokers and Banks Rules over the INVESTOR is grave tragedy and Fact.
Lack of Transparency and Failure of resolve Investor's Grievance is Lamely touched Area. I have solid Proof, as my own Serious Fraud complaint not taken up from two years, discarded on one or other Technical resaons – but Court has found EVIDENCE of Brokers/ Banks Clinching with the Regulators and the Police.
Seems now SEBI is going to be strict about concent orders.