The rapid developments with regard to the “Consent Order” mechanism to settle regulatory action initiated by the Securities & Exchange Board of India are rather intriguing
On Friday, 25 May the Securities and Exchange Board of India (SEBI) released revised consent rules by amending its Consent Circular of 20 April 2007. It did this even as proceedings related to a Public Interest Litigation (PIL) challenging the very legality of the Consent Circular were underway at the Delhi High Court.
Meanwhile, The Economic Times reported today that Reliance Industries (RIL), India’s largest private sector group has moved the Bombay High Court urging that action initiated against it in a massive insider trading case should be allowed to be settled under the now-discarded consent regulations.
RIL’s action comes after SEBI has apparently rejected its consent application twice before. However, it is not clear why SEBI has not initiated regulatory proceedings against the group for so many years. The RIL case suggests that there is no clear process for initiating punitive action once the regulator rejects a consent request. It is also unclear under what rules and circumstances it does this, since there is apparently a very long window available to some entities to keep revising their settlement offers.
The PIL in Delhi HC has prayed, amongst others, for quashing of the 2007 circular and all consent orders passed by SEBI pursuant to it. It has argued that SEBI’s circular does not have clear legal basis.
SEBI’s recent amendment to the consent rules states that it will not settle charges such as insider trading, fraudulent and unfair trade practices, failure to make the open offer, front-running, manipulation of net asset value or other mutual funds defaults, failure to redress investor grievances and failure to make disclosures under the ICDR. But, having said that, it still keeps a window open for by arming itself with discretionary powers to settle any case even in these defaults!
The original SEBI consent mechanism was obliquely justified on the grounds that it was modelled on the lines of the settlement procedure followed by the US Securities and Exchange Commission (SEC). This is factually incorrect.
Unlike the SEBI Act, the SEC has specific provisions in its statues to govern the settlement procedure (and not consent) with clear objectives of investor protection and fairness. They focus on disgorgement of illegal gains and compensation to affected investors from the money disgorged and fines collected. The SEBI Act has no provision for awarding compensation or damages for the losses suffered due to fraud or unfair practices. The fines imposed by SEBI are deposited in consolidated fund of the Government of India. Further, settlement terms of the SEC require the approval of a court (which can also reject the settlement). SEBI’s consent orders are entirely negotiated by its staff and ratified by its own chosen committee, headed by a retired judge. There is no known case where this committee has objected to the consent terms or sought their modification.
This means that even after the latest amendment, the fundamental issue of whether SEBI’s consent rules are legally valid has still to be decided by the courts. Does SEBI have the powers to settle all type of defaults? In my view, it does not. In fact, once it is satisfied that a violation or transgression of rules has occurred, SEBI is mandatorily required to impose the penalty prescribed for that particular offence under the Act. It has no discretion in the matter. For instance, “a penalty of Rs25 crore or three times the amount of profits made out of insider trading, whichever is higher,” is to be levied for insider trading or non-disclosure of acquisition of shares and takeovers or fraudulent and unfair trade practices.
Both SEBI circulars on consent proceedings—dated 20 April 2007 and 25 May 2012—turn the intent of the legislature as well as the letter and spirit of the legislation on its head. The legislation provides for mandatory and specific (in most of the violations) penalties whereas SEBI’s circulars over-ride this and empowers itself to decide matters on a case-by-case basis. A close reading of the latest amendment makes it obvious that it is another exercise in self-empowerment and SEBI’s sympathies lies with the violators rather than in protecting investors’ interest and safeguarding market integrity.
The new regulations are strange in another respect. They in fact formalize the process for those who commit an offence or violate a rule to walk through the consent door every two years (from the date of the previous consent order or even earlier “if the default is minor in nature”). Only those who have already received two consent orders (or pardons) already have to wait for three years before applying for consent again.
SEBI’s consent rulings so far have been extremely opaque and arbitrary, so one can only draw inferences from the amendments. One such amendment says that a consent application cannot be filed until the investigation is complete. Does this mean that in the past, under a more lawless regime, SEBI has allowed entities to file consent applications even before it had completed its investigations and figured the extent of wrongdoing?
Clearly, the new consent regulations are also grossly inadequate. SEBI is India’s capital market regulator, it would do well to regulate, strictly within the parameters set by the legislature and leave legislation to parliament.
(Virendra Jain is the president of Midas Touch Investors Association. His views expressed are personal.)
Disclosure: Midas Touch Investors Association has filed an application for impleadment in a PIL in Delhi HC challenging the power of SEBI to issue such consent guidelines. It is fixed for hearing on 8 August 2012.
The toxic waste has been lying in the UCIL plant since the 1984 Bhopal gas tragedy, the world's worst industrial disaster that left over 15,000 people dead and thousands maimed
New Delhi: The Supreme Court on Monday pulled up the Centre for not being serious on disposal of toxic waste lying in the defunct Union Carbide India Ltd (UCIL) plant, now represented by DOW Chemical Company, in Bhopal for the last 28 years and asked it to take a final decision on it soon, reports PTI.
"You are not sure even after 28 years. It is because people affected and living in Bhopal are poor. It is a failure on your part to deal with this," a bench of justices GS Singhvi and SJ Mukhopadhaya said, adding that "there is lack of seriousness in handling this problem".
It asked the Centre to place before it the decision taken by the Group of Minister (GoM) on the issue by the end of June.
The toxic waste has been lying in the UCIL plant since the 1984 Bhopal gas tragedy, the world's worst industrial disaster that left over 15,000 people dead and thousands maimed.
Expressing reservation in interfering in government decision, the bench said it "never wants and should never want to run the government", but it has to keep in mind public interest.
The court on 11th May had put on hold its order directing disposal of toxic waste lying in the plant at the Pithampur waste treatment storage and disposal facility (TSDF) in Madhya Pradesh's Dhar district.
It had deferred the implementation of its 4th April order in the wake of various issues raised by Madhya Pradesh government and some NGOs about the "possible fall-out of the trial run" for the disposal of UCIL wastes and the fact that the "GoM considering the issue is yet to take a final decision".
When the matter was taken up today, the government, however, said that it will soon decide on the issue and the GoM will be meeting on 8th June to take a decision on it.
"In Pithampur, people are bound to protest. They are entitled to protest. You have not taken any decision. Even this affidavit of yours is so vague and you always say that you are hopeful," the bench said and said that people affected by the toxic waste can approach court for compensation.
"The court never wants and should never want to run the government. It is not our job. If media had continuously followed this like the environment issue then picture would have been different," the bench said.
The court was hearing an appeal against the Madhya Pradesh High Court's interim decision directing the Environment and Forests Ministry Secretary to explain what is to be done with the 350 tonnes of toxic wastes lying at the UCIP since 1984 when the Bhopal gas leak disaster had occurred.
Citing lack of uniformity in the prices of petrol, the petitioner said that in Thane, the price per litre is Rs81.70, while it is as low as Rs58.06 in Port Blair, Rs81.75 per litre in Bengaluru and Rs73.18 in Delhi
Mumbai: The Bombay High Court on Monday issued notices to Centre, Ministry of Petroleum and Natural Gas and Finance Secretary, besides three oil marketing companies on a public interest litigation (PIL), which claimed that recent hike in petrol prices is "illegal" since it lacked the Parliament's approval and "ultra vires" of Constitution, reports PTI.
A bench of Justice RY Ganoo and Justice NM Jamdar ordered service of notices to the respondents, who apart from the central ministries also include the oil marketing companies, namely the Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp.
The bench has posted the matter to 30th May.
The PIL, filed by Rajendra Phanse, submitted that the petrol prices were hiked "abruptly" on 23rd May 23 at the stroke of midnight after the conclusion of the budget session of Parliament.
The petitioner contended that the raise in petrol prices was "totally illegal" as it has no approval of the Parliament.
The oil marketing companies had increased prices of petrol by Rs7.50 per litre.
Terming as "undemocratic", the hike since it was announced after the Budget session was over, the petitioner argued that in the past the decisions like raising the rates of postal and telephone services used to be taken during the budget session.
The petitioner further said that the hike was against the principles of natural justice as it is bound to affect the entire population of the country.
Citing lack of uniformity in the prices of petrol, the petitioner said that in Thane (Maharashtra), the price per litre is Rs81.70, while it is as low as Rs58.06 in Port Blair, Rs81.75 per litre in Bengaluru and Rs73.18 in Delhi.
This showed that the prices of petrol change from city to city within the country, which is nothing but a geographical discrimination in contravention of Article 14 of the Constitution, he said.
Since petroleum is a Central subject, the prices of petrol must be uniform across the country in tandem with the principles of equality before law, the petition maintained, citing uniformity in scales of pay under the Central government, including subordinate judiciary, across the country.
Supply of petrol is a essential service required by the nation and the Centre should set up a Regulatory Commission to draft a uniform policy on the petroleum products, including petrol, diesel, CNG and LPG, and place the policy before Parliament for approval, the petitioner said.
Advocate VP Patil, who appeared for Phanse, a resident of neighbouring Thane, urged the court to direct the respondents to fix a uniform rate of petrol throughout the country.
He also urged the high court to direct respondents to roll back the hike of Rs7.50 per litre of petrol.
Phanse also requested the court to direct the respondents to take any policy decision pertaining to hiking petrol prices only during the parliament session since such decision affects common people the most.
The PIL also maintained that the Centre be refrained from taking any "hasty" decision--about increasing prices of petrol---when the House is adjourned sine-die because such decision is undemocratic and illegal in nature.