On October 10, the Securities and Exchange Board of India (Sebi) passed an order against DLF and six of its key officers (chairperson, directors and CFO), preventing them from accessing the securities market or dealing in securities for three years. This follows another major action by Sebi against the Sahara group of companies and its chairperson which is now being heard by the Supreme Court. While Sebi’s order is subject to appeal and is therefore not yet final, its willingness to go after major market entities found to be violating laws is welcome. This should also be seen in the context of the Competition Commission’s moves to address transgressions by big players in the cement, automobile and real estate sectors. By all accounts, these independent regulators established by Parliament are slowly taking steps to deter violation of laws within their jurisdiction, and signalling that market entities, irrespective of size, will receive equal treatment and supervision.
Since 1991, independent regulators have been set up by Parliament in various sectors to meet the changing needs of a market-driven economy. In a framework where a number of private players exist and compete, there is a need to provide effective regulatory oversight in order to ensure consumer protection, prevent monopolistic practices and abuse by market entities. Independent regulators, set up at arm’s length from the government, are well placed to do so. This is because, in principle, they have the flexibility to hire expert staff and retain them, build sector-specific expertise and remain insulated from political pressure. The last 20 years of this process have been marked by some important successes and some failures. The Saradha scam, the ULIP dispute and the NSEL fiasco are all examples of problems within this regulatory design.
Moving forward, there is a need to create legal frameworks that ensure a standard design for the independence and accountability of regulators. There is also a need to ensure that their decision-making is made more participatory by soliciting and responding to public comments. Such a framework would further enhance their durability and legitimacy. Last, independent regulators are equally bound to obey the rule of law and explain their decisions clearly and lucidly. Sebi’s decision is a good example of the same. Further gains within the financial sector can be had by the implementation of the report of the FSLRC, which stresses on global best practices of regulatory governance and mechanisms for ensuring regulatory independence and accountability.