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Finance ministry throws cold water on Sebi's ambitions

Puja Mehra

The finance ministry has asked Securities and Exchange Board of India to redraft the Securities Laws Amendment Bill, 2001, while seeking clarifications on the regulator's demand for additional powers including that to "give directions to investors".

In a meeting chaired by Rakesh Mohan, advisor, finance ministry, the market watchdog on Wednesday laid bare the Securities Laws Amendment Bill, 2001, which would strengthen the powers vested with the regulator. It is learnt that the finance ministry expressed reservations on powers like ordering imprisonment and conducting physical searches on offenders.

"One single authority cannot be the regulator, investigator and also the court to deliver judgements," the markets watchdog was told at the meeting according to top government officials. "Sebi is only trying to make the best of the current fiasco," they added.

According to officials, it was unlikely that Sebi be vested with far-reaching powers before the Parliament session was over.

"The concerned ministries have to give their concurrence, a cabinet note prepared and circulated amongst parties concerned and then only it will be introduced in the Parliament for discussion," they said. Officials said that some of Sebi's demand - especially that for giving directions to investors - was unheard of even elsewhere in the world. "Nowhere in the world do market regulators have the authority to ask investors to act in a particular way which the regulator thinks is appropriate," they said.

Sebi, however, contended that as a regulator it should be able to direct broker outfits, foreign institutional investors and large market operators who were in a position to influence the market by virtue of their strong positions on individual scrips. Sebi has called for amendments to the Securities Laws viz., the Depositors Act, the Sebi Act and the Securities Contract Regulation Act as it presented the draft Securities Amendment Bill, 2001 to be discussed before the panel comprising senior officials from the department of company affairs, the Reserve Bank of India and the finance ministry. The regulator has also sought adjudication powers for its officers under the provisions of the Securities Contract Regulation Act. On powers to conduct physical searches akin to those vested with the Income Tax authorities, Sebi has been asked to clarify how it will prevent misuse of powers. While Sebi also sought powers to order imprisonment for 3-5 years for offences under the Securities Laws, the finance ministry is learnt to have argued against it suggesting Sebi can only refer imprisonment advice to the courts.

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