[The following
post is contributed by Nivedita Shankar,
who is a Senior Associate at Vinod Kothari & Co. She can be reached at nivedita@vinodkothari.com
post is contributed by Nivedita Shankar,
who is a Senior Associate at Vinod Kothari & Co. She can be reached at nivedita@vinodkothari.com
In an earlier
post, we had provided an overview of the Ordinance and the possible rationale
behind it. This post provides more specific details]
post, we had provided an overview of the Ordinance and the possible rationale
behind it. This post provides more specific details]
The President of India
promulgated The Securities Laws (Amendment) Ordinance, 2013 (“Ordinance, 2013”) to bring amendments
to:
promulgated The Securities Laws (Amendment) Ordinance, 2013 (“Ordinance, 2013”) to bring amendments
to:
1. Securities
and Exchange Board of India, 1992 (“SEBI”)
and Exchange Board of India, 1992 (“SEBI”)
2. Securities
Contracts (Regulation) Act, 1956 (“SCRA”)
Contracts (Regulation) Act, 1956 (“SCRA”)
3. Depositories
Act, 1996 (“Act, 1996”)
Act, 1996 (“Act, 1996”)
What sets the Ordinance, 2013
apart is that it has given SEBI a lot of powers when it comes to bringing to
book violators. Further, by proposing to set up Special Courts, speedy trails of
offences have also been attempted.
apart is that it has given SEBI a lot of powers when it comes to bringing to
book violators. Further, by proposing to set up Special Courts, speedy trails of
offences have also been attempted.
Listed below are the major
amendments to all the three acts.
amendments to all the three acts.
1. Scope of calling for information
Section 11(2) (ia) of SEBI Act has been inserted to
empower SEBI to call for any information or records from any person including bank or any other
authority or board or corporation, which shall be required in respect of any
investigation or inquiry by SEBI.
empower SEBI to call for any information or records from any person including bank or any other
authority or board or corporation, which shall be required in respect of any
investigation or inquiry by SEBI.
2. Power to SEBI with retrospective effect
The Ordinance, 2013 has empowered SEBI to call for
information in matters relating to violations in respect of securities laws,
from authorities whether within India or outside. This shall be with retrospective effect from March 6, 1998[1].
To further this power, SEBI in order to furnish information to any outside
authority, can also enter into an arrangement or agreement, with the prior approval of Central Government.
information in matters relating to violations in respect of securities laws,
from authorities whether within India or outside. This shall be with retrospective effect from March 6, 1998[1].
To further this power, SEBI in order to furnish information to any outside
authority, can also enter into an arrangement or agreement, with the prior approval of Central Government.
3. Transfer to IEPF
Any amount disgorged
prior to directions issued by SEBI u/s 11B and 12A shall be credited to IEPF,
for utilization as set out in SEBI Act.
prior to directions issued by SEBI u/s 11B and 12A shall be credited to IEPF,
for utilization as set out in SEBI Act.
4. Scope of classifying as Collective
Investment Scheme broadened
Investment Scheme broadened
Section 11AA of
SEBI Act laid down qualifying criteria to be a CIS for schemes or arrangements,
which pooled funds from public.
SEBI Act laid down qualifying criteria to be a CIS for schemes or arrangements,
which pooled funds from public.
In addition to
this, a deeming provision has been added whereby any pooling of funds under any
scheme of arrangement involving a corpus of Rs. 100 crore or more and not
registered with SEBI, shall also be taken to be a CIS. This will bring chit
funds having corpus of more than Rs. 100 crores under the purview of SEBI also,
which according to section 11AA are exempt from SEBI exercising its jurisdiction.
Presently, such schemes of pooling of money with corpus of more than Rs. 20
crores have to be registered as an Alternate Investment Fund.
this, a deeming provision has been added whereby any pooling of funds under any
scheme of arrangement involving a corpus of Rs. 100 crore or more and not
registered with SEBI, shall also be taken to be a CIS. This will bring chit
funds having corpus of more than Rs. 100 crores under the purview of SEBI also,
which according to section 11AA are exempt from SEBI exercising its jurisdiction.
Presently, such schemes of pooling of money with corpus of more than Rs. 20
crores have to be registered as an Alternate Investment Fund.
Further,
such schemes or arrangements could qualify as an CIS only if they were offered
by any company. With Ordinance, 2013, even schemes or arrangement offered by persons can qualify as a CIS. This is to
say, any company or even an LLP which offers such schemes can qualify as a CIS
and be regulated by SEBI.
such schemes or arrangements could qualify as an CIS only if they were offered
by any company. With Ordinance, 2013, even schemes or arrangement offered by persons can qualify as a CIS. This is to
say, any company or even an LLP which offers such schemes can qualify as a CIS
and be regulated by SEBI.
5. Explanation inserted to provisions
pertaining to SEBI’s powers to issue directions
pertaining to SEBI’s powers to issue directions
Section 11B of SEBI Act, Section 12A of SCRA and
Section 19 of Act, 1996 pertain to powers of SEBI to issue directions. By
Ordinance, 2013, an explanation to all these sections has been inserted to mean
that powers so vested with SEBI is to include and shall be deemed to have included power to direct any person to
pay back the amount equivalent to the profit made or loss averted to any
wrongful gain or loss averted by any contravention.
Section 19 of Act, 1996 pertain to powers of SEBI to issue directions. By
Ordinance, 2013, an explanation to all these sections has been inserted to mean
that powers so vested with SEBI is to include and shall be deemed to have included power to direct any person to
pay back the amount equivalent to the profit made or loss averted to any
wrongful gain or loss averted by any contravention.
6. Search and seizure powers to SEBI
With the advancement of technology, SEBI required
additional powers to bring perpetrators to book. In keeping with this, SEBI has
been given power to search any building, vessel, aircraft or break open the
lock of any door, safe. Additionally, SEBI can also seize any books or
accounts, place marks of identification and record on oath the statement of any
person. Such powers have been granted after amending Section 11(c)(8) of SEBI
Act which pertains to any person or enterprise who, during the course of
investigation, has omitted to provide information, would not provide
information or would destroy, mutilate information or documents.
additional powers to bring perpetrators to book. In keeping with this, SEBI has
been given power to search any building, vessel, aircraft or break open the
lock of any door, safe. Additionally, SEBI can also seize any books or
accounts, place marks of identification and record on oath the statement of any
person. Such powers have been granted after amending Section 11(c)(8) of SEBI
Act which pertains to any person or enterprise who, during the course of
investigation, has omitted to provide information, would not provide
information or would destroy, mutilate information or documents.
7. Powers to make regulations
Section 11(c)(9) has been substituted to empower SEBI
to make regulations, to lay down the procedure to be followed by any authorized
officer:
to make regulations, to lay down the procedure to be followed by any authorized
officer:
(i) For obtaining ingress into any building, place,
vessel, aircraft to be searched where free ingress is not available
vessel, aircraft to be searched where free ingress is not available
(ii) For ensuring safe custody of any books of
accounts or documents seized.
accounts or documents seized.
Further,
section 11(c)(10) of SEBI Act has also been amended to allow the investigating
authority to return the documents or records seized without intimation to
Magistrate of such return.
section 11(c)(10) of SEBI Act has also been amended to allow the investigating
authority to return the documents or records seized without intimation to
Magistrate of such return.
8. Settlement of administrative and civil
proceedings
proceedings
Section 15JB of SEBI Act, Section 23JA of SCRA and
19-IA of Act, 1996 have been inserted allowing any person against whom any
proceeding has been initiated or may be initiated to file an application to
SEBI proposing to settle the proceedings initiated or to be initiated for
alleged defaults. These sections have been inserted with retrospective effect
from April 20, 2007[2].
19-IA of Act, 1996 have been inserted allowing any person against whom any
proceeding has been initiated or may be initiated to file an application to
SEBI proposing to settle the proceedings initiated or to be initiated for
alleged defaults. These sections have been inserted with retrospective effect
from April 20, 2007[2].
9. Omission of provisions relating to appeal
of consent orders to Securities Appellate Tribunal
of consent orders to Securities Appellate Tribunal
Section 15T(2) of SEBI Act has been omitted which
prohibited any appeal from being made to SAT of any consent order.
prohibited any appeal from being made to SAT of any consent order.
10. Amendment to provisions pertaining to
“cognizance of offence by courts”
“cognizance of offence by courts”
Section 26(2) of SEBI Act and SCRA and Section 22(2) of
Act, 1996 has been omitted by the Ordinance, 2013. These sections prohibited
any court inferior to that of a Court of Session to try offence punishable
under these acts.
Act, 1996 has been omitted by the Ordinance, 2013. These sections prohibited
any court inferior to that of a Court of Session to try offence punishable
under these acts.
11. Establishment of Special Courts
Section 26A in
SEBI Act and SCRA and Section 19-IA of Act, 1996 has been inserted to allow
constitution of Special Courts for speedy trial of offences. A Special Court
shall consist of a single judge who shall be appointed by Central Government
with the concurrence of Chief Justice of the High Court within whose
jurisdiction the judge to be appointed is working. Further, any offence shall
be tried by a Court of Session until the Special Court is established.
SEBI Act and SCRA and Section 19-IA of Act, 1996 has been inserted to allow
constitution of Special Courts for speedy trial of offences. A Special Court
shall consist of a single judge who shall be appointed by Central Government
with the concurrence of Chief Justice of the High Court within whose
jurisdiction the judge to be appointed is working. Further, any offence shall
be tried by a Court of Session until the Special Court is established.
It has also
been inserted that the provisions of Code of Civil Procedure, 1973 shall be
applicable to the proceedings before a Special Court.
been inserted that the provisions of Code of Civil Procedure, 1973 shall be
applicable to the proceedings before a Special Court.
Analysis
In what has been a long wait for
the officials of SEBI, sweeping powers have been given to SEBI being perpetrators
to book by allowing it to also search and sieze documents. Such powers were with
limited number of authorities presently. Further, by giving retrospective
effect to ask for information on old cases from foreign regulators, SEBI has
been given more teeth in relation to cases pending for more than 15 years. It remains
to be seen as to how will SEBI utilize the additional rights vested on it going
forward.
the officials of SEBI, sweeping powers have been given to SEBI being perpetrators
to book by allowing it to also search and sieze documents. Such powers were with
limited number of authorities presently. Further, by giving retrospective
effect to ask for information on old cases from foreign regulators, SEBI has
been given more teeth in relation to cases pending for more than 15 years. It remains
to be seen as to how will SEBI utilize the additional rights vested on it going
forward.
– Nivedita Shankar
[1] On
March 6, 1998, SEBI had entered into a Bilateral MoU with Securities and Exchange
Commission, USA. All other bilateral MoU signed by SEBI with other regulators
of other countries were after this date.
March 6, 1998, SEBI had entered into a Bilateral MoU with Securities and Exchange
Commission, USA. All other bilateral MoU signed by SEBI with other regulators
of other countries were after this date.
[2] On
April 20, 2007 SEBI issued Circular No. EFD/ED/Cir-1/2007 dated April 20, 2007
on consent orders and compounding of offences
April 20, 2007 SEBI issued Circular No. EFD/ED/Cir-1/2007 dated April 20, 2007
on consent orders and compounding of offences