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The Securities Laws (Amendment) Act, 2014

Finsec Law Advisors

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After being successively promulgated as an ordinance thrice, provisions enhancing the regulatory powers of the securities regulator have finally been etched in stone as the Securities Laws (Amendment) Act, 2014 which came into force on the August 25, 2014. The Act strengthens the investigative and enforcement powers of SEBI to crack down on illegal ponzi schemes and seeks to ensure that ample avenues are available with the regulator to recover funds raised by these entities. In brief, the powers regarding calling of information, modes of recovery of amounts upon the failure of a person to pay any penalty, fees or the failure to comply with a disgorgement order etc. are in line with the previous ordinances. However, the Act has omitted the elaborate powers that were previously given to the chairman regarding the authorisations of search and seizure operations under the ordinances. Now, authorisation would be required to be taken from a magistrate or judge of a central government designated court for search and seizure operations. This entails that the SEBI (Procedure for Search and Seizure) Regulations, 2014 which were framed on the basis of the powers granted under the ordinances would now be rendered redundant.

Although the effort is laudable on a broader level, concerns have been raised regarding an overtly paternalistic attitude towards regulating every activity which involves collective investment. For instance, as it stands today, any pooling of funds with a corpus of Rs. 100 crores (Rs 1 billion) or more would be deemed to a collective investment scheme and will attract the onerous registration and disclosure requirements under the SEBI CIS Regulations, 1999. Such a requirement would unnecessarily hinder genuine commercial activity such as construction of real estate projects etc. which inevitably require the pooling of money over the specified threshold of Rs. 100 Crores. It is important to establish checks and balances to restrict the scope of Section 11AA of the SEBI Act, 1992 in order to avoid an overly broad interpretation of the provision.