BackParliament clears Sebi Bill to tackle Ponzi schemes
Lawmakers stop short of arming Sebi with the right to tap phones and conduct searches without court approval
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New Delhi: Parliament on Tuesday approved legislation aimed at giving the Securities and Exchange Board of India (Sebi) more powers to crack down on frauds such as Ponzi schemes and to protect investors, but stopping short of arming it with the right to tap phones and conduct searches without court approval.
Securities Laws (Amendment) Bill 2014 was passed by the Rajya Sabha, giving it the parliamentary seal of approval, after Lok Sabha passed it last week. It now needs the President’s signature to become law. “The Act has been fine-tuned and new architecture with wider language has been introduced...Sebi has no power to tap telephones...Sebi can call for information on call data records. The power to bug or intercept is not given to Sebi within the Act," finance minister Arun Jaitley said.
The bill was brought against the backdrop of thousands of small investors being duped by fraudulentinvestment schemes like the ₹ 2,000-crore scam in West Bengal involving the Saradha Group, a deposit-taking firm, that came to light last year. Following the collapse of Saradha Group in April 2013, the Union government constituted inter-ministerial group to look at ways to plug regulatory loopholes around such so-called multi-level marketing or pyramid schemes.
The new law will empower Sebi investigators to conduct searches and seek information from suspects, both within and outside the country. As a safeguard, any search operation can be conducted only after approval of a designated court in Mumbai, where Sebi headquarters is based. In an ordinance promulgated by the previous United Progressive Alliance (UPA) government, Sebi was vested with powers to conduct search and seizure operations without prior permission.
“This is too arbitrary a power.... Therefore, this power had to be tapered down," the finance minister said. The law will also cover multi-level marketing schemes, which are disguised as collective investment scheme (CIS), with a corpus of ₹ 100 crore or more.
The new powers will help Sebi recover dues from defaulters, search premises and seize documents relevant to any violation of capital markets laws. They will also allow Sebi to access call data records in insider trading investigations. In May 2013, Sebi sought powers to pass cease and desist orders on offenders. Sebi chairman U.K. Sinha had said that the regulator had asked for powers similar to regulators such as the Competition Commission of India to recover dues and take action against deposit-taking firms illegally raising public money.
“The move is in the right direction, though one may debate that a lot more could have been done," said Sudip Bandyopadhyay, managing director and chief executive of Destimoney Securities Pvt. Ltd, a brokerage firm.
“Tackling CIS and recovering money from defaulters will be easy with these additional powers," Bandyopadhyay said. “Also, by amending the ordinance a bit and making it mandatory for Sebi to take a permission of a special court before conducting any search and seizure operation, the government has ensured that Sebi uses this power judiciously."
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