New Delhi: The Finance Ministry’s plan to table the Sebi Amendment Bill in Parliament to set up an Investors’ Protection Fund has been delayed as confusion prevails on whether the penalties imposed by Sebi should remain with the regulator or go into the government’s kitty.
Official sources said Finance Ministry has sought the opinion of the Law Ministry on whether the amount of penalties should go to the Consolidated Fund of India or a fund under the market regulator. The latter is yet to give its comments.
Further, the Law Ministry is understood to have sought views of the Attorney General (AG). Sources said the AG has opined that the penalties and fines should go to Consolidated Fund, as it is the government’s money.
In the AG’s views, various kinds of fee collected by Sebi from companies should remain with it, the sources said.
However, Investors’ Protection Fund (IPF) could come into existence only if the penalties imposed by Sebi are kept under the market regulator, the sources said.
At present, since all fines and penalties go into the Consolidated Fund, it denies Sebi direct access to the money for investors’ protection.
In his Budget for 2006-07, Finance Minister P. Chidambaram had promised to set up an IPF by amending the Sebi Act.
The proposed amendments include provisions for more powers to the regulator for administering the stock market and safeguard the interests of investors.
The sources said the fund collected through disgorgement would also go to IPF. However, money to be collected through the last year’s disgorgement order of Sebi would not go to the fund as IPF was not supposed to be operational from retrospective effect, they added.
Passing a disgorgement order for the first time in the IPO scam in November 2006, Sebi had asked National Securities Depository Ltd (NSDL) and Central Depository Service (India) Ltd (CDSL) and eight depository participants to cough up Rs115.81 crore.
Disgorgement refers to repayment of funds that were received through illegal or unethical business transactions. The sources said investors who might incur financial losses due to any scam in the stock market will be compensated from IPF.
However, Sebi has so far not decided how to compensate retail investors from the money to be collected from NSDL, CDSL and the eight DPs.