Armed with greater powers to deal with fraudsters and market manipulators, Securities and Exchange Board of India has initiated nearly 200 attachment proceedings for recovery of investors' money and unpaid penalties from various defaulters.
The proceedings have been launched in a period of little over a month and have been initiated as part of Sebi's new powers to order freezing of bank accounts, attachment of properties, conduct of search and seizure operations and launch of recovery proceedings.
Besides, the capital markets regulator is also holding consultation with CBI, Tax Department, ED and other investigative and enforcement agencies to beef up its own competence in exercising newly granted powers, officials said.
The Securities and Exchange Board of India has also set up a separate recovery department under its Enforcement Division to carry out recovery proceedings and other search and seizure operations, they added.
Besides, bulk of new staff being hired by Sebi, including 75 officers in recently initiated recruitment drive, would be used for such roles. Beginning late September, Sebi has already initiated close to 200 attachment proceedings for recovery of investor money amassed through illicit schemes, as also of long-pending penalties for various market related defaults, officials said.
Through an ordinance promulgated by the government, Sebi has been given direct powers to freeze bank accounts, attach properties, conduct search and seizure and initiate recovery proceedings. To replace this ordinance, the Securities Laws (Amendment) Bill, 2013 is expected to be presented before Parliament in the next session. The ordinance has already been promulgated twice, the last being in September.
Sebi has been seeking these powers for long to better regulate markets and take to task the fraudsters and other defaulters more effectively. Soon after the promulgation of the ordinance, Sebi began exercising these powers and has put in place necessary operational mechanism, including those requiring changes in the manpower deployment.
As part of its recovery proceedings, the regulator has served orders to various banks to attach the accounts of those who have not paid penalties imposed on them for violations of various securities market regulations.
These include freezing of bank accounts for recovery of funds totalling nearly Rs 1,550 crore (Rs 15.5 billion), which includes over Rs 1,500 crore (Rs 15 billion) for one single case involving an illegal collective investment scheme in West Bengal.
In this case, Sebi has ordered attachment of over 50 bank accounts of MPS Greenery Developers for recovery of Rs 1,520 crore (Rs 15.2 billion), along with applicable returns, collected from investors through its illegal schemes.
Sebi has also issued notices for attachment of bank accounts in other matters, including Pyramid Saimira case of 2012 and IPO fraud of 2003-2005. Besides, the recovery proceedings have been initiated against many entities for their failure to make the penalties imposed on them for various securities market violations.
As on June 2013, penalties worth around Rs 121 crore (Rs 1.21 billion) were pending from over 1,300 individuals and entities. Some of the penalties are pending for over a decade.
Advocating for the new powers, Sebi had recently told a Parliamentary panel that prosecution proceedings initiated by it against defaulters have not proved to be an effective deterrent in the past.
Referring to the powers to attach assets and recovery of monetary penalties, Sebi told the Standing Committee on Finance that the only recourse available to the regulator so far in cases where defaulters fail to pay up the penalty imposed on them, was to initiate prosecution proceedings.
"However, because of the delays associated with the criminal justice system, such actions have not been proved to an effective deterrent," Sebi had said. Besides Sebi, Finance Ministry officials have also deposed before the Parliamentary Committee on the proposed Securities Laws (Amendment) Bill, 2013.
The Bill seeks to amend the Sebi Act, 1992, with consequential changes in the Securities Contracts Regulation Act, 1956 and the Depositories Act, 1996 to provide for greater powers to the regulatory body.