Nearly 1,000 cases settled; Rs 29 cr recovered as disgorgement fee.
The consent order mechanism has proved to be an effective weapon for the Securities and Exchange Board of India (Sebi), helping the regulator settle nearly 1,000 cases and collect more than Rs 150 crore as settlement charges.
The recent high-profile regulatory action against Anil Ambani-controlled Reliance Infrastructure (R-Infra) and Reliance Natural Resources (RNRL) has, once again, brought to the fore the importance of the mechanism, introduced in 2007.
Consent order means an order that settles administrative or civil proceedings against an entity that may, prima facie, be found to have violated securities laws. This reduces regulatory costs and saves the time and effort spent on pursuing enforcement actions. The US Securities and Exchange Commission settles more than 90 per cent administrative/civil cases through consent orders.
| MAKING PEACE | |
| No of consent applications received | 2,220 |
| No of applications approved by HPAC | 1,023 |
| No of applications disposed | 982 |
| No of applications rejected | 681 |
| Disgorgement amount received | Rs 28.97 cr |
| Settlement charges | Rs 151.78 cr* |
| Legal/Administrative charges | Rs 1.09 cr |
| * Includes Rs 50 cr R-Infra, RNRL consent order (Between Apr 2007 and Dec 2010) | |
Data with Sebi show that a large number of market entities facing regulatory action, including prosecution and adjudication, opt for the consent route to end the ordeal that, at times, can continue for years. Until December 31, 2010, Sebi had received 2,220 applications, of which 1,023 were approved by the high-powered advisory committee. Of these, 982 cases have been settled.
Consent orders have helped the regulator extract more than Rs 150 crore (including Rs 50 crore from Anil Ambani and five other executives of R-Infra and RNRL) as settlement charges. This money goes directly to the Consolidated Fund of India. Sebi has also been able to collect nearly Rs 29 crore as disgorgement amount from those named in the IPO (initial public offer) scam. The amount collected has been distributed to the victims of the scam. Sebi has also garnered a little over Rs 1 crore for itself in the form of legal and administrative charges.
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Experts say the consent route helps the regulator overcome the long-drawn process involving the regulator, the appellate tribunal and the judiciary.
“The consent mechanism enables Sebi to extract punishment without actual proof of wrongdoing, short-circuiting a decade-long process to a few weeks,” says Sandeep Parekh, founder, Finsec Law Advisors. “Also, as Sebi can (and does) impose a higher quantum of settlement fee and disgorgement, in exchange for a ‘without admitting or denying guilt’ plea, it allows effective payment to the victims of the harm done,” adds Parekh, who has earlier served as executive director (legal) at Sebi.
The acceptance of consent orders can be gauged from the fact that entities file consent applications even after their cases have moved to the Securities Appellate Tribunal or the high courts. The consent terms in such cases, technically known as ‘compounding’, have to be approved by the respective authorities looking into the cases. Nearly 70 such cases have been disposed by Sebi.
Lawyers, however, say the regulator should be more forthcoming with details in the order, which often leaves a lot of questions unanswered. A common criticism is that the accused entities are allowed to escape with a monetary penalty or disciplinary action that does not justify the nature of the offence.
“An area where the process can be reformed is details in the consent order,” said a lawyer specialising in securities law. “Ideally, the order should contain more details of the charges, so that people are not under the impression that a person got away lightly,” he said.