The Securities and Exchange Board of India (Sebi) will not settle serious offences, including insider trading and front-running, by the consent process.
"The defaults falling in the category of fraudulent and unfair trade practices, which in the opinion of Sebi are very serious and have caused substantial losses to the investors, shall also not be consented," the market regulator, which released a new framework for passing consent orders, said in a release.
Sebi has listed offences, including insider trading, failure to make an open offer, front-running, manipulation of NAV (net asset value), failure to redress investor grievances and non-compliance of summons, that will be excluded from the consent process.
Under the new framework, Sebi shall only accept a consent application for up to 60 days of the servicing of a showcause notice.
After an applicant files for the consent process, the application will be taken up by an internal committee, which would have a Sebi general manager. After that, the consent terms will be placed before the High Powered Advisory Committee (HPAC), which will consist of a retired high court judge and three other external experts.
The recommendations made by the HPAC will then be placed before a panel of two whole-time members for their approval. The whole-time members may enhance or reduce the settlement amount or may even reject the consent process.
Sandeep Parekh, former executive director at Sebi and currently a partner with Mumbai-based Finsec Law Advisors, said, "The new guidelines will improve the disclosures for passing a consent order. Earlier, the consent order used to be sketchy. Now, the final order will have more details on the allegations made and the assessment done."
To decide the settlement charge through the new consent process, the regulator will take into account a minimum benchmark amount for each category of default. The benchmark amount will take into consideration the penalty imposed by the adjudicating officer and the order passed by the whole-time member as the case may be. Sebi may charge additional amounts for any previous defaults or track record of the applicant.
The market watchdog has said no consent application will be considered within a period of two years from the date of any consent order. In case an applicant has already obtained two consent orders, a fresh application will only be considered after three years from the last order.
Once, Sebi rejects a consent application, it will not consider any further application for the same default at a later stage.
Sebi has said the consent terms may also include other directives, including the disgorgement of ill-gotten profits.
The new guidelines will come into force with immediate effect. However, cases where the consent terms have already been placed before the HPAC or are at a higher stage shall be dealt with previous guidelines. It could not be ascertained at which stage the high-profile case involving Reliance Industries is, where consent order proceedings were initiated for alleged insider trading in 2007.
The consent process, introduced in 2007 and modelled on the US system, is a settlement of proceedings between Sebi and the alleged violator without admission or denial of the guilt, subject to a fine and also a voluntary ban in some cases. The consent process was introduced with a view to cutting down on costs and time involved in enforcement actions.
In January 2011, Sebi had settled a probe through consent with the Anil Ambani-led Reliance Group, for alleged routing of money raised through overseas bonds, for a settlement charge of Rs 50 crore (Rs 500 million), the highest till date.
The market regulator decided to review the consent process in mid-2011, after an internal assessment that indicated there was a lack of consistency in cases of similar offences.
Sebi has said it will look at disposing of consent applications within a period of six months.
