Sebi Takeover Code stick worries players

Regulator's move to tighten compliance levels of India Inc

The Securities and Exchange Board of India's (Sebi's) decision to levy penalties on companies that violate the takeover regulations has raised concerns among players.

The Sebi move is seen as a bid to tighten compliance levels of India Inc.

But a chartered accountant said the regulator's approach leaves much to be desired.

Jayant Thakur, a CA specialising in securities law, said: "In 2002, Sebi allowed companies and promoters to 'regularise' certain defaults or delays in filing documents, with a flat penalty of Rs 10,000.

"Many took the benefit of this amnesty scheme but some, particularly the 'vanishing companies,' did not. Now, Sebi has reportedly sent numerous penalty 'orders' to companies for delayed filing of documents."

Sebi is sending an order-cum-offer letter, levying a flat and substantially high penalty. A copy of the order, available with Business Standard, shows that the regulator has given the alleged defaulter 30 days to accept the offence, and accept the penalty.

But chartered accountants and law firms say the latter part of the letter effectively forego their rights to a personal hearing and the right to appeal.

The pro forma Sebi letter to companies says the regulator will initiate regular proceedings if the alleged offender fails to comply with this offer-cum-consent letter.

A Sebi spokesman refused to comment on the issue or clarify on the market's concerns despite repeated reminders.

Markets sources said the Sebi order violates principles of natural justice as no opportunity is given to the accused to defend their position.

Secondly, as one partner from a Mumbai-based law firm pointed out, Sebi has threatened the alleged violators with penalties which were not even in the statute books when the alleged default took place.

"It is a well-settled in law that penalty is leviable only as per the law existing at the time of default. Even the Constitution of India, as a Fundamental Right provides in Article 20(1) that no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence."

Since the Sebi action pertains to offence committed during 1997-99, the maximum penalty according to the law at that time was Rs 1.50 lakh.

Another a chartered accountant pointed out, "the law also specifically provides that each and every case should be viewed as per its own facts and penalty is levied only if certain specified factors are attracted. The Bombay High Court has specifically held that penalty, though leviable, need not always be levied."

Interestingly, Thakur added that to respond to the 'order,' the person has to write to Sebi accepting the offence, offer to pay penalty and also accept that there is no binding offer from Sebi.

The person thus faces, on the one hand, a penalty of a few lakhs. The alternative is an uphill legal fight.