Fostering Enforcement Mechanisms: The Regulatory Challenge Asian Roundtable Bangkok, 13 – 14 -15 September 2006

2. Fostering Enforcement Mechanisms:The Regulatory ChallengeAsian RoundtableBangkok, 13 –14 -15 September 2006 Presentation by M.K. ChouhanChairman, Mahendra & Young Knowledge Foundation Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance

3. Empowerment issue Adequate empowerment has been given to SEBI •  SEBI Act w.e.f. 1992 • Series of amendments have come since then : •  1995 – Monetary Penalties were included • 2000–Enforcement Powers / Investigation / Search / Seizures (Section 11 –C) • 2004 – Demutualization of stock exchanges  Thus , SEBI is reasonably empowered

4. Obstacles & Barriers to effective enforcement Criminal prosecution : • Regular courts very slow, • Cases used to take very very long time. • Normal courts busy with routine work • disposal rate very low 12 – 13 cases in a year • It takes 10 –12 years, therefore violator is not worried.   Eg Out of 1000 cases filed most are at stage of summons. Enforcement Obstacles : Power vested with other law enforcement agency like CBI or Police are not with SEBI.

5. Obstacles & Barriers to effective enforcement • If one particular firm is barred from dealing in Securities, People behind it may operate through alternate firm. Detection of these related firms is difficult. Separate powers for Enquiry, adjudication & administration – delay decisions 1. Enquiry Officer – Authority for Suspension of Certification 2. Member of SEBI – Authority to for Administration / Direction i.e. Debarring from operating in securities Market. 3. Adjudication Officer–Authority for Monetary Penalty

6. Indian Experience • Two Designated Courts have been set up for SEBI prosecution cases at Mumbai & New Delhi • With Oct 2002 SEBI amendment – SEBI can impose up to Rs 25 crore (US$ 5.5 mn) penalty e.g Recently Holicim a Swiss co. having JV with Indian Cement CO. has been imposed 25 crore (US$ 5.5 mn) penalty   A Broker - Ketan Parekh has been debarred for 14 years from dealing in Securities Market

7. Indian Experience • After 2002 amendment, tiers have been reduced to only three : High courts are avoided. The cases are settled in the following manner SEBI to Securities Appellate Tribunal (SAT), to Supreme Court • Issues of fact are settled in SAT • Law related issues are settled in Supreme Court.

8. What should be done ? Enforcement at various levels : • Self Regulated Organizations (SRO’s) should be encouraged and empowered • SEBI registered – Broker SROs – Mutual Funds SROs

9. What needs be done ? • Revenue Recovery Act being suggested • Compensating the victims is not being done, only action against offender is being taken • There is no specific provision in statute on disgorgement area. Thus such provisions should be brought. • No power for confiscation of proceeds of Securities, during investigation. such powers should be brought Eg. If fraudulent allotment is made by a promoter, it can be debarred for some time, but chances are that these securities might again come to the Market.

10. What needs be done ?… • Multiple Enforcement Action i.e Enquiry & adjudication, administrative powers, All these three powers should be under one single authority • Investor awareness should be improved so that compliance can be quickened. • Justice Karia Committee has given it’s report & recommendations can be viewed on www.sebi.gov.in • Effective Speedy enforcement Justice delayed is justice denied

11. THANK YOU