The Government of India, in its attempt to bolster the securities regulation regime, has affirmed that fraudulent investment schemes would be dealt with an iron hand. The proposed Bill has adopted a three-pronged approach to target Ponzi schemes and other fraudulent practices. First, it expands the jurisdictional expanse of the SEBI Act, 1992. Second, it provides additional powers of enforcement to SEBI, and third, it facilitates the speedy disposal of cases. The Bill has provided sweeping powers to SEBI, in relation to calling for information, regulating collective investment schemes, disgorgement, search and seizure, settlement of administrative and civil proceedings and recovery of penalties.
Although the Bill has addressed certain uncertainties that existed regarding the scope of SEBI's enforcement powers such as those questioned in Karvy Stock Broking Ltd. v. SEBI, there are several concerns that are yet to be addressed in relation to the new powers that have been vested in SEBI.
The broad and inclusive meaning given to Collective Investment Schemes has resulted in some confusion regarding the scope of the term. Further, the Bill proposes a mechanism which is heavily dependent on delegated legislation which should be passed promptly to avoid uncertainty.
The Bill proposes to insert a new provision which provides that any amount disgorged be credited to the SEBI Investor Protection and Education Fund. SEBI should now clearly provide that the disgorged amount be made available to victims of the fraud/insider trading violations. Merely taking away ill-gotten gains is not sufficient to redress the grievance of investors who must be made whole where possible.
While providing extensive powers of investigation to SEBI, the Bill has removed certain checks and balances that were hitherto in effect. For instance, the requirement to approach a judicial magistrate in relation to search and seizure has been removed. Further, to recover penalties, the Bill proposes to empower SEBI with unfettered powers of attachment and sale of a person's movable/ immovable property, attachment of a person's bank accounts and even arrest and imprisonment. There is a need for some internal checks and balances to be put in place by SEBI.