Finance minister P Chidambaram has asked Lok Sabha Speaker Meira Kumar to ensure the bill to replace the crucial Sebi ordinance that gives the regulator powers of search and seizure is passed by Parliament.
Chidambaram made the pitch to Meira Kumar in a letter sent to her just hours before he left for the World Economic Forum meeting at Davos.
The minister’s intervention came after the Securities and Exchange Board of India approached the Attorney General for advice on whether its new powers for search and seizure and to police chit funds will be valid despite the lapse of an ordinance.
While sources in the government said they have advised the regulator that the orders issued by it will remain valid, Chidambaram has written to the Speaker that the bill should be passed in the upcoming session so that the powers of the regulator do not remain subject to court orders.
The minister has requested Meira Kumar to ask the standing committee on finance chaired by former finance minister Yashwant Sinha to table the Securities Laws (Amendment) Bill, 2013, bill in Lok Sabha in its session from February 6.
This will allow the government to incorporate the recommendations in the bill that gives Sebi the power to punish individuals and companies which run Ponzi schemes. It has also given the regulator right to obtain records of telephone conversations and conduct searches at offices of companies to unearth evidence against them for committing frauds in the stock markets. The extension was a result of series of frauds by companies like Saradha in West Bengal. In the last two years, Sebi has also fought a court battle with Sahara group to make it repay investors more than Rs 20,000 crore as money owed to depositors in two of its schemes, both of which have been asked to be wound up by the court.
The ordinance has lapsed on January 15. Since Sebi had issued detailed regulations to exercise the powers and has also used them in several cases, with the lapse of the ordinance there is a question mark whether those regulations and the actions taken under them will remain valid. Sebi chairman UK Sinha said he is concerned that the actions by the regulator in several cases can now be challenged in courts.
The Attorney General is yet to respond to the issues but a source said actions taken in pursuance of an ordinance, even if it lapses are valid. This follows from the precedent of a Supreme Court order of 2005 in the Raja Mehmoodabad case that was nullified by an ordinance issued in 2010.
“A legal question can only arise if the government changes or Parliament rejects the bill to replace the ordinance,” said a law ministry source. The Sebi ordinance was issued twice last year as Parliament did not get time to clear the bill. Since there is less than three weeks to summon Parliament the ordinance cannot be re-issued.
For Parliament to pass the bill into an Act, the standing committee of finance has to submit its report but after queries from members the committee has decided to reopen it. Mahtab, a member of the committee, said they were initially in favour of giving powers to Sebi to prevent stock market mischief rather than remain engaged in a perpetual fire-fighting mode. He said but now the bill will lapse once the session is over since it is the property of the Lok Sabha. A lame duck government cannot issue such an ordinance.