The Securities and Exchange Board of India (Sebi) chairman seems to be in a Diwali shopping mood. Over the past few weeks, he has piled up a huge wish list on the government. It all started around the time the judgement on the Rajat Gupta insider trading case was delivered in the US. Bored of asking for permission to access phone records of insider traders, Sinha said we needed special courts and earmarked judges to prosecute insider trades and other such heinous securities market crimes because the courts take forever.
Then, he said, Sebi needed “powers of recovery” as people whom it penalises simply don’t pay up. “Our provisions for recovery are less effective, and therefore somebody can choose to ignore and the actual actions against them can take years,” Sinha said. He wanted provisions like in the Income Tax Act. After asking for all these powers, Sebi wanted a critical part of its responsibility taken away. It asked the government to come out with a separate set of norms and an independent regulator for collective investment schemes, “as loopholes in existing regulations lead to many unscrupulous entities defrauding gullible investors and going scot-free,” a PTI report said. That’s only a glimpse of the Sebi shopping list. I am afraid the list will grow beyond Diwali.
But, I doubt if the government, the stingy husband it is, would grant any of these wishes. At least, not in any great hurry. It is not a crime to ask for new sarees. But is Sebi using its existing ones enough?
A few live cases hint otherwise. Virendra Jain, founder of Midas Touch Investors Association called me after reading a recent Business Standard report on how companies that allegedly rigged their initial public offerings are dodging the deposit of funds raised in escrow despite a Sebi order. Jain said the Sebi Act, SCRA, etc vest in the regulator enough powers to bring offenders to book, but these powers are rarely used. Midas Touch has filed a PIL, wherein it is seeking the court to direct Sebi to “invoke adjudication under section 23-E of SCRA for levying penalty on 2,048 companies”. These 2,048 companies are suspended entities where over Rs 1 lakh crore worth investor funds are stuck. The petition has even asked for a CBI inquiry into the “dereliction of duty” by Sebi.
Another matter where the regulator has been dragging its feet is the insider trading case against RIL, where it has done little despite having all powers. Last week, the Central Information Commission has asked Sebi to reveal the identity of 12 entities that short-sold shares on behalf of RIL. The 10-day deadline ends this Friday. It will be interesting to see whether the regulator reveals the names or uses its ‘powers’ to appeal against the order, which was issued in “public interest”. This will be followed by another crucial power test: Repaying 30 million Sahara investors by November 30. Sebi would become more powerful in everyone’s eyes, if it disposes of these responsibilities and ensures the triumph of the law-abiding over the law-breaking. That day will be the real Diwali for the securities markets. Happy Diwali.
