The Securities and Exchange Board of India (SEBI), as the capital market regulator, has the power to frame regulations and bye-laws and enforce them through vast powers of surveillance, search and seizure and even arrest. However, the SEBI Act also makes it clear that powers are delegated to the regulator with a set of clear conditions: 1) the power to make regulation is delegated to SEBI’s board and not to its officials; so all important regulations have to be cleared by the board. 2) These regulations must be in the interest of investors and the markets. 3) Such regulations will be notified in the official gazette and placed before the Parliament which is the body from which SEBI derives its powers.
SEBI’s regulations have the full force of a statute including enforcement and punishment; but they have to be tabled in Parliament as a sort of rite of passage. Now consider this. The SEBI (Prohibition of Insider Trading) Regulations, 2015, as the name suggests, were cleared by the board and have already been effective for two years. And, yet, they have not been tabled in the Lok Sabha, even after they were published in the gazette notification on 15 January 2015. These are important and far-reaching regulations which overhauled India’s first-ever insider trading regulations of 1992. They are the key regulations that ensure a fair market with a level playing field.
How serious is this lapse? In principle, it means that if either house of Parliament raises any objection or wants the regulation amended or rescinded, then the regulator will have to comply. Specifically, Section 31 of SEBI Act states: “Every rule and every regulation made under this Act shall be laid, as soon as may be possible after it is made, before each House of Parliament, while it is in session, for a total period of thirty days…” This can be split over two sessions; but it is categorical that if both houses want any modification or agree that the rule or regulation should not be made, then it can “have effect or be of no effect, as the case may be.” However, this will not impact the validity of anything done under the regulations in the interim.
In other words, the power to make regulation is a privilege of the Parliament and is only delegated to SEBI as a regulator. The Parliament retains the right to modify or strike down the regulations. Although it rarely happens that the power is rejected, there is no ambiguity about the regulator’s duty to place the rules before Parliament. The failure to table the regulations is, hence, a breach of Parliament’s privilege.
Shouldn’t someone be accountable for ensuring that these processes are followed and shouldn’t there be consequences for the failure to do so? Clearly, yes; otherwise, we would have regulators running amok without any oversight. Over the past couple of decades, empty benches in Parliament, frequent boycotts and the lack of interest among our public representatives have had a deleterious impact. Since nobody notices whether regulations are, indeed, placed before Parliament, regulators have also turned lackadaisical.
Consequentially, their legal departments have turned all-powerful. For nearly 13 years, the head of SEBI’s legal department has been an executive director on a three-year contract. He owes his loyalty and terms of service to successive SEBI chairmen who ensure an extension of his term. Every blunder, including sharp strictures by the courts of the Securities Appellate Tribunal (SAT), have made no difference. The buck, for the failure to table the regulations, ought to stop at desk of the SEBI chairman, but we are not even sure whether the lapse was noticed.
Unless the members of Parliament take note of the lapse and demand accountability, there will be no investigation or action. Someone in the finance ministry ought to be held responsible for this too. Will it happen?
