THE Union Law Ministry has shot down the proposal of the Securities and Exchange Board of India (Sebi) seeking additional powers for itself to impose fines besides issuing suspension and termination orders to stock brokers as well as annulling the central government’s power to frame rules on holding inquiries and imposing penalties against bourse violators.
At present, Sebi is not empowered to impose monetary penalties — it merely issues disciplinary orders against errants while the monetary fine is adjudicated upon by a subordinate Sebi officer appointed by Sebi’s board. This board includes top officials from the Finance Ministry.
The Finance Ministry had, initially, supported Sebi’s August 2017 proposal that it be given powers to levy monetary penalty in addition to issuing punitive directions. Sebi argued that a dual authority was “resulting in substantial delay and duplication of proceedings on the same cause of action”.
In October 2017, Sebi sent a second proposal suggesting that a “uniform procedure” be put in place for piloting all enforcement proceedings under the securities laws.
In effect, these two Sebi proposals meant a repeal of the Sebi (Intermediaries) Regulations and the rules on Procedure for Holding Inquiry and Imposing Penalties that are framed by the Central government, technically the Finance Ministry.
Early last month, official records show, the Finance Ministry told the Department of Legal Affairs: “Please put up inverting the issue of empowering Board to impose penalties also urgently.”
In a week’s time, the Department of Legal Affairs got back advising against amendments sought by Sebi.
“Penalty being a liability imposed as punishment on the party committing the breach can be levied only after following the procedure established by law. Therefore, imposing any penalty without following due process of law may not be legally tenable,” it said.
It added: “Since regulatory and adjudication functions are different and distinct, Sebi being a regulator, its separate identity needs to be maintained. Therefore, any proposal which disturbs such regulatory regime of Sebi may go against the intent and object of the Act.”
It also argued that different processes were provided for levy of monetary penalty under Chapter VI A, issue of directions under Sections 11, 11B, 11D and cancellation and suspension of registration of intermediaries under Section 12 of the Sebi Act.
It said that the Central government, under Section 29 of the Sebi Act, was empowered to make rules for carrying out an inquiry while Sebi, being a regulator, was conferred with the power to appoint an officer not below the rank of Division Chief to be an adjudicating officer for holding the inquiry.
“Rule making is different from the power to make regulations which can be conferred on statutory bodies/regulators like Sebi. In the circumstances, repealing Section 29(2) (da) may take away the power of the Central Government,” it concluded.