Sebi attachment orders cross 1,300-mark; Govt readies new bill

New Delhi: As the government readies a new bill for empowering Sebi to take on fraudsters and defaulters, the number of attachment orders passed by the capital markets watchdog with the help of an ordinance has crossed 1,300-mark for recovery of penalties and dues in nearly 400 cases.

The ordinance, which had to be promulgated thrice to empower Sebi to pass attachment orders and launch recovery proceedings against fraudsters and market manipulators, including those running illegal deposit schemes, lapsed today. To ensure that the Securities and Exchange Board of India (Sebi) retains powers to act against fraudsters and other defaulters, the government is readying a new Securities Laws (Amendment) Bill, 2014, sources said. A proposal in this regard would soon be placed before the Union Cabinet and the bill would be subsequently introduced in the Parliament for passage, they said, while adding that the new Bill could be different from the Ordinance and would have more safeguards to balance the new powers for Sebi.

The proposed bill would amend three Acts -- the Sebi Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996 -- which govern the entire gamut of regulating the Indian capital markets. Before the expiry of the third ordinance, an emergency measure initiated when the Parliament is not in session, the regulator managed to launch at least 1,358 attachment proceedings in 389 different cases for recovery of well above Rs 1,600 crore worth assets from banks and demat accounts of hundreds of defaulters.

The proceedings in these cases would continue irrespective of the ordinance having lapsed. In the last week itself, more than 100 attachment orders were passed by Sebi, while at least 68 such proceedings were initiated in a single day on July 17. The final numbers may increase further as details may not have been uploaded on Sebi website for all attachment and recovery proceedings initiated by the regulator under its Ordinance-given powers. These include action against various entities running illicit money-pooling activities, while recovery proceedings have also been launched against those refusing to pay the disgorgement amounts, penalties and fees payable to Sebi.

While Sebi was established more than 25 years ago, it has got direct recovery powers to act against those refusing to pay penalties and other dues only through this Ordinance. The new recovery proceedings include attachment of bank and demat accounts, attachment of movable and immovable properties, appointment of receivers for management of attached properties and arrest and detention of defaulters. According to a senior official, Sebi has already completed recovery in many cases while recovery process is in advanced stages in many other instances.

Prior to the promulgation of the Ordinance, Sebi had to follow a time-consuming process of filing prosecution against the defaulters and fraudsters and the number of defaulters refusing to pay the dues had crossed 1,300 last year. Besides, Sebi had also directed various entities to refund money collected illegally from investors through more than 600 unauthorised Collective Investment Schemes, wherein these entities had collected more than Rs 1,500 crore. In the absence of direct recovery powers, Sebi was not in a position to effectively enforce its orders earlier. In the last 2-3 months, Sebi has been very active on attachment and recovery proceedings.

While earlier it did not have right and enough manpower to handle such kind of work, Sebi sent its officers for training to Income Tax department and at least two rounds of such trainings have already taken place. It is unlikely that the new bill would retain the powers given to Sebi through the ordinances in totality and discussions are underway for dilution of some powers or for putting in additional safeguards in the relevant Acts, sources said.

The discussions followed letters written by some MPs to the Prime Minister and the Finance Minister against the 'sweeping powers' given to Sebi through this ordinance. A complete withdrawal of these powers is unlikely, as they have been very effectively used for taking on the fraudsters especially those collecting money from investors through illicit public deposit schemes, a senior government official said. "People are also saying that such sweeping powers should come with necessary safeguards, but the fact is that there are many safeguards that have been provided under the ordinance," he said. According to sources, certain corporate lobbies were also been very active against the Ordinance, but the government's dilemma is two-fold in this matter.

If such powers are withdrawn from Sebi and some other type of illicit deposit-collection scheme comes to the fore, the government will have no defence, another senior official said. "Besides, the Congress party would make this an issue and say that the last government went out of way to get this Ordinance promulgated three times, including at a time when the election code of conduct was in place," he added. The official further said: "The Congress can say that the last government was committed to safeguard the interest of common investors and the new government has let this Ordinance lapse and let go the fraudsters scot-free." On the other hand, the political pressure has been rising on the new government against the Ordinance.

"Therefore, it is most likely that they would do some balancing job and water-down some of the provisions. There can be more safeguards that can be put in place," the official said. The ordinance, an emergency measure, had to be promulgated thrice to empower Sebi as an earlier bill could not be passed in the Parliament. The third ordinance was issued on March 28, 2014, which has also lapsed now after expiration of maximum six-week period today since re-assembly of the Parliament since the promulgation of the ordinance.

When Lok Sabha and Rajya Sabha are convened on different dates, this period of six weeks is calculated from the later of the two dates. In the present case, the first Lok Sabha session after promulgation of this ordinance took place on June 4, while Rajya Sabha session began on June 9. The Ordinance was first promulgated on July 18, 2013, followed by re-promulgation on September 16, 2013.