Corporate Governance

1
(No Transcript)
2
Fostering Enforcement MechanismsThe Regulatory
ChallengeAsian Roundtable Bangkok, 13 14 -15
September 2006

• Presentation
• by
• M.K. ChouhanChairman, Mahendra Young Knowledge
  Foundation
• Vice Chairman, Global Advisory Board - Asian
  Centre for Corporate Governance

3
Empowerment issue

• Adequate empowerment has been given to SEBI
•  SEBI Act w.e.f. 1992
• Series of amendments have come since then
•  1995 Monetary Penalties were included
• 2000Enforcement Powers / Investigation / Search
  / Seizures (Section 11 C)
• 2004 Demutualization of stock exchanges
•  Thus , SEBI is reasonably empowered

4
Obstacles Barriers to effective enforcement

• Criminal prosecution
• Regular courts very slow,
• Cases used to take very very long time.
• Normal courts busy with routine work
• disposal rate very low 12 13 cases in a year
• It takes 10 12 years, therefore violator is not
  worried.
•   Eg Out of 1000 cases filed most are at
  stage of summons.
• Enforcement Obstacles
• Power vested with other law enforcement
  agency like CBI or Police are not with SEBI.

5
Obstacles Barriers to effective enforcement

• If one particular firm is barred from dealing in
  Securities, People behind it may operate through
  alternate firm. Detection of these related firms
  is difficult.
• Separate powers for Enquiry, adjudication
  administration delay decisions
• 1. Enquiry Officer Authority for Suspension of
  Certification
• 2. Member of SEBI Authority to for
  Administration / Direction i.e. Debarring from
  operating in securities Market.
• 3. Adjudication OfficerAuthority for Monetary
  Penalty

6
Indian Experience

• Two Designated Courts have been set up for SEBI
  prosecution cases at Mumbai New Delhi
• With Oct 2002 SEBI amendment SEBI can impose up
  to Rs 25 crore (US 5.5 mn) penalty e.g Recently
  Holicim a Swiss co. having JV with Indian Cement
  CO. has been imposed 25 crore (US 5.5 mn)
  penalty
•   A Broker - Ketan Parekh has been debarred
  for 14 years from dealing in Securities Market

7
Indian Experience

• After 2002 amendment, tiers have been reduced to
  only three High courts are avoided.
• The cases are settled in the following manner
• SEBI to Securities Appellate Tribunal (SAT), to
  Supreme Court
• Issues of fact are settled in SAT
• Law related issues are settled in Supreme Court.

8
What should be done ?

• Enforcement at various levels
• Self Regulated Organizations (SROs) should be
  encouraged and empowered
• SEBI registered
• Broker SROs
• Mutual Funds SROs

9
What needs be done ?

• Revenue Recovery Act being suggested
• Compensating the victims is not being done, only
  action against offender is being taken
• There is no specific provision in statute on
  disgorgement area. Thus such provisions should be
  brought.
• No power for confiscation of proceeds of
  Securities, during investigation. such powers
  should be brought
• Eg. If fraudulent allotment is made by a
  promoter, it can be debarred for some time, but
  chances are that these securities might again
  come to the Market.

10
What needs be done ?

• Multiple Enforcement Action i.e Enquiry
  adjudication, administrative powers, All these
  three powers should be under one single authority
• Investor awareness should be improved so that
  compliance can be quickened.
• Justice Karia Committee has given its report
  recommendations can be viewed on www.sebi.gov.in
• Effective Speedy enforcement
• Justice delayed is justice denied

11

• THANK YOU