Regulations
SEBI’s compromises and settlements in India vs the US SEC action

In India, laws and regulations are in place but implementation is abysmal. The enforcement machinery is extremely toothless. The miniscule penalties that are levied are not at all commensurate with the offence and ill gotten gains

One fails to comprehend the soft peddling attitude of the market regulator Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA) that are adopting ‘kid gloved’ treatment to all kinds of insider trading and illegal activities so blatantly and overtly practiced by some of the big ticket operators here. On the other hand, the US authorities move toughly and succeed in nailing against the likes of SAC Capital that once reigned the hedge fund world (founder Steven A Cohen was listed by Forbes as being worth $8.8 billion), Rajat Gupta and Enron.
 

Earlier, Rajat Gupta, former director of Goldman Sachs was ordered by the court to pay a hefty $13.9 million fine along with a life time bar from associating with brokers, dealers and investment advisors, permanently enjoining him from future violations of the securities law and barring him from serving as director or officer of any public company.  This was triple the benefit hedge-fund manager Raj Rajratnam had obtained from the tips Gupta allegedly passed on to him. He is already facing a $5 million fine and a two year prison sentence in a parallel criminal insider trading case.

 

This comes at a time when both the Justice Department as well as the Securities Exchange Commission (SEC) in the US have been acting really harshly on all the insider trading violators. In the case of SAC Capital, it became the first hedge fund to plead guilty to insider trading after an extensive six-year long dragnet by the regulators who issued stern warnings and imposed fines that totalled $1.8 billion. The Guardian & AP report says, “SAC has agreed to a passel of penalties, which follow a July indictment that ordered a $900 million fine and forfeiture of another $900 million to the federal government, though $616 million that the SAC companies have agreed to pay to settle parallel actions by the SEC… SAC also agreed to accept a 5-year probation period in which any employee seeking to start a new investing business would require government permission in addition to agree to shut down its advisory business that accepts money from outside investors”.
 

April Brooks, the head of the New York office of the Federal Bureau of Investigation (FBI) is quoted as calling the insider trading at SAC “substantial, pervasive and on a scale without known precedent... nothing short of institutional failure... a work culture at SAC that permitted, if not encouraged insider trading.” The evidence against SAC was so overwhelming and voluminous that it included electronic and instant messages, and court-ordered wiretaps and consensual recordings. She has  gone on to indicate that US government regulators, including the Department of Justice, the FBI and the SEC plan to use SAC as a lesson to other fund managers, adding “How your employees make their money is just as important as how much they make.”  
 

The prosecutors’ case is that SAC earned hundreds of millions illegally from 1999 through 2010 when its portfolio managers and analysts traded on inside information from at least 20 known public companies. Preet Bharara, the US attorney for the southern district of New York said, “SAS trafficked in inside information on a scale without precedent in the history of hedge funds”.  Half of the about $15 billion in assets that SAC managed as of early this year is said to belong to Cohen and his employees and the rest clients’ money. The SEC, in a separate case, has sought to ban Cohen from the entire securities market for failure to prevent insider trading.
 

However, in India, the laws and regulations are in place, but implementation is abysmal. The enforcement machinery is extremely toothless. The miniscule penalties that are levied are not at all commensurate with the offence and ill gotten gains. The debarment mechanism is slow and ineffective. So far the biggest ticket Sensex biggies caught red handed have been dilly dallying to buy time when they ought to coughed up crores like the billions penalised by the US Regulators. It is time they bare their teeth a la SEC and US Justice Department.
 

(Nagesh Kini  is a Mumbai-based chartered accountant turned activist.)

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COMMENTS

sanjay

4 years ago

these are all crooks

sathyacumaran

4 years ago

sathyacumaran
singapore media and channel group
In US the Law is strict but in India the law is strict but there should courage by the authroities while implementing them because each business is attached to some political party and they put an pressure to the authority of sebi and stock exchanges and beyond if they try to do these political party uses goodas to threaten the officials even the Police power is silent spectator if some thing happens to senior officials of sebi or stock exchanges of india our Prime minister and Finance minsiter and congress chairperson would give an report that we strongly condemn this barberious attack of the officials of sebi and stock exchanges and they would give Rs 10 lakhs from PM relief fund and full state honours would be ordered for the funeral of that official that is situation apart from this the officials also not clean or straight forward they cojoin with political thugs and get their share and apart from this the officials of sebi and stock exchanges after their retirement they get lucartive position in big buisness house inorder for not implementing the law infact we could say law makers are law brakers is our surmise please let us know whether our judgment is true or not

sanjay

4 years ago

Dear Nagesh,

Nice article and I fully agree with your views. I have lot of information on these operators & their modus operandi .. can I help you in any way ? I want these regulatory bodies to wake up from their deep slumber and bring these white collar criminals to book .. please contact me on [email protected] .

REPLY

nagesh kini

In Reply to sanjay 4 years ago

Sure Sanjay! You can pass it all on to MoneyLife to caay as follow ups. Until and unless people like you join in with hardcore facts and figures the culprits get away.
It is only because of Dr. Subramanya Swami and his relentless pusuit right up to the Supreme Court that the 2G can of worms was opened. Now he promises tto do it with the Jet-Etihad deal. He too needs all support.

sanjay

In Reply to nagesh kini 4 years ago

right nagesh ..

Vaibhav Dhoka

4 years ago

In India no where action is taken on law breakers may it be SEBI RBI IRDA or Indian Judiciary.Here there is NO FEAR of action.The action if at all taken is so much delayed that one looses faith in system itself.I recall SEBI chairman' letter to Maharashtra Chief secretary calling for no action from police EOW department in case of stock brokers complaint On one hand SEBI wants no action on Stock brokers and it wont act against broker community itself due to wasted interest.One can find arbitration procedure failure.I recall my complaint against Kotak Securities Ltd,since 2004.Kotak Securities says its SEBI to take action.Police directs complainant to approach SEBI. When SEBI is approached they don't act at all.And it is not possible to approach higher judiciary as it is TOO expensive.The cost of court approach comes to more than losses.And this is reason why most regulators don't ACT.In USA one sees action taken and culprits get DUE punishment.

REPLY

sanjay

In Reply to Vaibhav Dhoka 4 years ago

Hi vaibhav, can you share details about kotak sec problem . I would like to help if any thing can be done .

Vaibhav Dhoka

In Reply to sanjay 4 years ago

Pl.give your e.mail for detailed problem sharing.Thanks

Vaibhav Dhoka

In Reply to sanjay 4 years ago

Pl.give your e.mail for detailed problem sharing.Thanks

sanjay

In Reply to Vaibhav Dhoka 4 years ago

I have seen your mail . will revert tomorrow morning .

Jet-Etihad deal: Can public interest be a victim of exclusionary conduct of CCI in a merger review?

Nothing is known as to what either happened or is happening inside the regulatory bodies responsible for clearing the Jet-Etihad deal. What is clearly known is that it is pending before the Competition Commission for quite some time now. It may not be a big surprise if the 210 days time limit expires

In the recent past, I happened to encounter many members of the public who were waiting with great anxiety for the outcome of the latest merger review pending before the Competition Commission of India (CCI) for clearance.  My endeavour was to explain to them that the Merger Review Architecture of India is so robust that there is no need to worry and the outcome would certainly be in the interest of the economy, consumer and the public interest. The purpose of this write-up is to spread the awareness about the robust institution the CCI has become so that no member of the public has any such unfounded anxieties.
 

On 11 May 2011, India moved closer to a functional merger control regime by unveiling her finalised combination (merger) regulations to the world. After having been finalised it at the end of a huge public debate over more than three years, a wide consultative process involving all the national and international stakeholders in this massive exercise, not having left any professional bodies or business chambers and associations from the consulting process, the exercise could have been said to be really broad based exercise. After putting into practice the combination regulations, which were arrived at the end of such a massive exercise, it is only proper to expect that the merger review process is fair to all, including the public interest—a euphemism for the national interest and interests of the common man.
 

Unfortunately, despite being talked about extensively almost every day in different internal files of the government and courts, in various matters, including the newly invented judicial device called the public interest litigation (PIL), the public interest remains a casualty in most of the governmental business transactions. On the contrary, if it is stated that public interest is more abused than used, it may not be too much of an exaggeration. In the circumstances, it is high time to evaluate if the draft combination regulations, finalised on 11 May 2011, can be able to live up to the hope of serving public interest and, if yes, to what extent.
 

One of the hotly debated deals, pending for clearance before CCI, is the acquisition of 24% stake in Jet Airways by Etihad Airlines. Not much is known, in public domain, about this particular deal except what is being frequently reported in the media. From different stories, what can be pieced together is that this deal took about two quarters of a year to be reached amongst the parties before they could approach regulatory authorities for approvals. It is further reported that, on account of different reasons, there was much to explain before different authorities such as Securities Exchange Board of India (SEBI), Foreign Investment Promotion Board (FIPB) and other government authorities and the deal underwent substantial changes in its structure on account of the issue of ‘control’ whether acquired directly or indirectly. Further, it is widely believed that, after all these changes, the deal between Jet and Etihad hardly remains a deal which it was to begin with.
 

Except for the newspaper reports, which have limited veracity, nothing is known as to what either happened or is happening within the regulatory bodies responsible for clearing this particular deal. The purpose of this write-up is not to look at the other clearances for this deal but only to look at it from the point of view of clearance before CCI from the perspective of public interest.
 

Let us go back to the law dealing with the issue. Section 31 of the Competition Act, 2002 (the Act) directs that if no order is passed by CCI within 210 days (the regulations state that the CCI would endeavour to clear the transaction within 180 days), the combinations would be deemed to have been approved by CCI.
 

Is CCI totally helpless to clear the deal even if it is anti-competitive if 210 days have passed from the date of filing of the details of the acquisition before the CC I or it has some other options before it? The unambiguous answer is: certainly not. The Act has to be read in conjunction with the implementing regulations for fully understanding the issue. Regulation 22 of the combination regulations deals with the publications of the details of the combination. This is the stage when the public is aware of the transaction and can come before CCI pointing out the anti-competitive effects of the combination, if any, before the CCI gives its clearance to the acquisition. Therefore, prior to the details of the combination being published in public domain, public interest remains hidden from the public. It is only left to CCI to take into account public interest, if it is so wants. No member of the public, on its own, can influence the decision of the CCI or can bring out the anti-competitive impact of the combination before CCI. The question arises as to whether there is adequate time for CCI to arrive at its decision and the public to respond after publication of details by CCI, if any.
 

What is the time available before CCI to make up its prima facie opinion before deciding whether to involve the public or not? This is given in Regulation 19 of the combination regulations. Its dictates that CCI has to make up its mind, within the first 30 days of the merger filing before CCI, to decide whether to clear the deal or take it to the second stage of investigation for detailed review. This means that out of 210 days available with the CCI for clearing a deal, 30 days belong to it for making up its mind away from public glare and the remaining 180 days belong to the public to get to know about any particular potential anti-competitive deal and respond with the details of anti-competitive effects, if any. In the circumstances, it is really foolish to fear that there could be a situation where the CCI would clear a deal after keeping it close to its chest for 210 days and then suddenly clearing it on the last day. There is no ambiguity on this score in either the law or the implementing regulations. The track record of the CCI, in the past, has shown that it is a really competent agency following the law and regulations diligently in the interest of the consumer and the economy.
 

The exact date of filing of this deal before the CCI is not known. What is clearly known is that it is pending before CCI for quite some time now. It may not be a big surprise if the 210 days’ time limit is expiring in near future. So far, no publication of this deal has been seen in any newspapers. If the deal was going to take more than 30 days, in terms of Regulation 19 of the combination regulations, it was a very genuine expectation of the public to know the details of the deal. It has not happened. Details of the deal are still not known to public, except by way of speculation in the media, and may only be known to the regulators.
 

It is not clear as to why despite a clear 30 days from the date of filing of this merger review, no public notice was seen in newspapers. It is possible that this did not happen because of heavy to-and-fro traffic of communications between the CCI and the parties to combination. The ever changing contours of this particular deal, which have been in the public eye for quite some time now, could have been another reason. Presuming that the shape of this deal has consistently undergone changes during the period of review, it has two implications. The first one is that the time available before the CCI for review is being constantly reduced. The CCI can only review what can be reviewed. It has to evaluate the anti-competitive impact of any combination of the touchstone of 14 factors clearly enunciated in law. This exercise cannot be done in a vacuum. If what was filed before CCI does not remain static, the CCI has all the powers in the world, in terms of the law and the Regulation 16 of the combinations regulations, to evaluate the degree of changes in the structure having come before it and declare the first merger filing as not valid, if considered appropriate.
 

This serves two purposes. The first one is that the CCI gets adequate time to evaluate a clear and definite merger. The second is that the public is not deprived of its legitimate right of having a look at the deal for a good 180 days before a decision is taken by CCI. It is a fair deal to all concerned including the deal itself and the dealmakers. In terms of the law and regulations, CCI need not base its decision on the ground that 210 days have expired from the date of filing of the combination ignoring the significant changes in the deal which are introduced by the parties to the combination, during its process of review as that would be unfair to the public.
 

It is really early as yet. It is not sure as to what is going on inside the competition agency. However, in view of the position of the law and implementing regulations and the track record of the CCI so far, one can rest assured that the law and regulations are taking their correct course. However, there is a possibility, howsoever remote, that the deadline of 210 days may be projected to look like a great pressure point by the parties to the combination before the competition agency. If they succeed in convincing the CCI to clear the deal under pressure of 210 days without the deal being known to public, that would be a very dangerous precedent. Although such a possibility looks very unlikely even if it is for the sake of argument, such a possibility happens. It can derail the entire merger review procedure. In the most unlikely event of such a thing becoming a precedent, the entire merger review process can be hijacked by vested interests and all types of anti-competitive deals can always be kept hanging till the last day without public knowing what is happening inside and thereafter suddenly clearing the deal in a jiffy on the last day under the claim that the 210 days have already passed from the date of the filing of the combination. This is likely to result in excluding the public interest in a very unfortunate but effective manner. All mergers would be approved even before the public even comes to know the basic details of the deal. It will also mean that half of the law and regulations would remain only on paper and not put into practice at all. That was certainly not the intent when the combination regulations were drafted. If that happens, it is not certain which agency will be needed to look into this exclusionary conduct- of excluding public interest?

 

(After completing more than two decades as a Commissioner in IRS of India, KK Sharma  was appointed as the first Director General of the functional Competition Commission of India (CCI). He has also been a very active member of International Competition Network (ICN), Merger Working Group. Mr Sharma was also nominated to one of the handful positions of an individual member of the Research Project Partnership (RPP) Platform of UNCTAD. A Ph.D. fellow in competition law from Bangor University, UK, Mr Sharma did masters in engineering from IIT, Roorkee, before doing graduation in law. Later, he completed PG Diplomas in Economics for Competition Law from King’s College, London, and IPR Laws from NLSU, Bangalore, respectively after doing Masters in Economics.)

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COMMENTS

PRABAL BISWAS

4 years ago

Do we need to know everything?

shadi katyal

4 years ago

This is a private deal between 2 airlines and since GOI has the right to issue licenses, it can hold or give go ahead. Northwest Airline had such deal with KLM but US Govt was not involved and there was no hue and cry as one reads.Now Air France owns KLM and Delta northwest.
True to save national interest as aircrafts are indirectly use but UAE is a friendly nation.
Had Air India not been a PSU and left alone one doubts such a deal or sell out would have happened. Live and Learn

Look forward to heydays of CS professionals: Certification requirements under the new Act

Considering that there are only around 5,800 Practising Company Secretaries or PCS in the country, each one will get to sign a reasonable number of annual returns, even if all such companies were to be distributed evenly. So all the practising professionals surely have a reason to cheer!

There is enough buzz in the corporate world regarding the role of Practising Company Secretaries (PCS) under the Companies Act, 2013 (the Act, 2013). Professionals were worried inasmuch as the scope and position of a Company Secretary in employment seemed to have increased, the role of PCS was a matter of concern when the corresponding section of 383A under the Companies Act, 1956 (the Act, 1956) was missing in the Act 2013. However, it seems that Act, 2013 has widened the scope of services that a PCS can offer. One of such area is annual return to be filed by a company under Section 92 of the Act, 2013.

 

Based on the provisions of Section 92, 203 and 204 of the Act, 2013 read with relevant draft rules, relevant compliance requirements with respect to PCS can be enumerated as under:

Categories

Particulars

Requirement

Category I

Private companies with paid up capital of up to Rs5o lakh

May or May not appoint Company Secretary. However, if appointed, whether on a whole time basis or on a part time basis, will qualify as a KMP. So annual return will be signed by the Company Secretary

 

Where there is no company secretary appointed, the annual return shall be signed by the director of the company

Category II

  1. Private companies with paid up capital of above Rs50 lakh and up to Rs5 crore

 

  1. Public companies with paid up capital up to  Rs5 crore

May or may not appoint Company Secretary. However, if appointed, whether on a whole time basis or on a part time basis, will qualify as a KMP.  So annual return may be signed either by the Company Secretary where there is one or by PCS in the absence of a Company Secretary

Category III

  1. Companies with paid up capital of Rs5 crore and above;

Mandatory to appoint full time Company Secretary (Sec 203). So annual return will be signed by Company Secretary

 

  1. Companies with paid up capital of Rs5 crore or more and turnover of Rs25 crore or more;

Mandatory to appoint full time Company Secretary (Sec 203). So annual return will be signed by Company Secretary

 

Further, the annual return will be certified by PCS

Category IV

Public companies with paid up capital of Rs100 crore or more;

Mandatory to appoint full time Company Secretary (Sec 203). So annual return will be signed by Company Secretary

 

Secretarial Audit by PCS and, the Annual Return will be certified by PCS (as a company with paid up capital of Rs100 crore will surely have a turnover of Rs25 crore)

 

So such companies will need both Secretarial Audit and Annual Return certification from PCS

Category V

Listed company

Mandatory to appoint full time Company Secretary, so annual return will be signed by Company Secretary

 

Secretarial audit by PCS and, the annual return will be certified by PCS

 

So listed companies will need both secretarial audit and annual return certification from PCS

 

Further, in case of a PCS being a co-signatory to the annual return, the PCS will only be verifying the information stated in the annual return. However, where the annual return requires certification of PCS, the PCS shall not only verify the contents of annual return but also certify compliance with provisions of the Act (as specified in Form 7.8).

 

It is important to note that once the CS is appointed as a full time employee or a part-time employee immediately become a key managerial personnel (KMP) as per the definition of a KMP. Therefore, all the obligations of a KMP get attracted.

 

As per the information gathered from professional colleagues at present there are about nine lakh active companies. Out of these, about seven lakh companies have a paid up capital of up to Rs50 lakh, which comprises of about only 35,000 public companies and the rest are private companies (i.e. a ‘small company’ as defined u/s 2(85) of the Act, 2013)

 

So, if small companies are excluded from the abovementioned statistics, we will still have a reasonable figure of companies which will require its annual return to be signed by PCS. The reason behind this is that companies with paid up capital of below Rs5 crore were neither required to appoint a Company Secretary under the Act, 1956 nor is it mandatory to appoint under the Act, 2013. Therefore, we presume that these companies will not appoint a Company Secretary in employment. Further considering that there are only around 5,800 PCS in the country, each PCS will get to sign a reasonable number of annual returns, even if all such companies were to be distributed evenly. So all the practising professionals surely have a reason to cheer!

 

The content of annual return is very exhaustive as opposed to Schedule V under Act, 1956. Further, the certification is not limited to contents of Annual Return but also covers compliance with all the provisions of the Act. The format of certificate to be given under the Act (Form 7.8) is very similar to a compliance certificate under the Act, 1956. 1956. Apart from this, other particulars such as remunerations, details of KMP, number of board and committee meetings held etc. also has to be certified. Therefore, this certification in itself is wholesome.

 

However, it is to be kept in mind that with more responsibility comes more accountability. Keeping in mind that the certification requirements are by and large very exhaustive and complex, practising company secretaries have to exercise due caution.

 

(CS Vinita Nair and CS Aditi Jhunjhunwala are senior associates at Vinod Kothari & Co, and look after corporate law division)

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COMMENTS

jakegeorge

3 years ago

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3 years ago

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21st Century providing Online training and support on All Technologies. If you are seeking training and support you can reach me on 91-9000444287. Online training by real time Experts. Call us 001-309-200-3848 for online training

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