As the debate continues on extra powers given to SEBI to take on fraudsters and defaulters, the number of attachment orders passed by the capital markets watchdog has crossed 700 for recovery of over Rs. 1,600 crore.
SEBI got the powers to pass attachment orders and launch of recovery proceedings against fraudsters and market manipulators, among others, through an Ordinance that has been promulgated thrice and needs to be replaced by an Act after passage of the same in the Parliament.
The Ordinance was first promulgated on July 18, 2013, followed by re-promulgation on September 16, 2013 and then for the third time on March 28, 2014.
According to the latest data, SEBI has issued 700 attachment orders in about 170 cases against various defaulters for recovery of over Rs. 1,600 crore since the ordinance was first promulgated by the government.
These include action against various entities running illicit money-pooling activities, while recovery proceedings have also been launched against those refusing to pay the disgorgement amounts, penalties and fees payable to SEBI.
While it is unlikely that these powers would be completely withdrawn from SEBI, discussions are underway for dilution of some powers or for putting in additional safeguards in the relevant Acts, sources said.
The discussions have followed letters written by some MPs to the Prime Minister and the Finance Minister against the ‘sweeping powers’ given to SEBI through this ordinance.
A complete withdrawal of these powers is unlikely, as they have been very effectively used for taking on the fraudsters especially those collecting money from investors through illicit public deposit schemes, a senior government official said.
Also, there is a wrong perception that the Ordinance was essentially brought in by the previous government to empower SEBI in its fight against Sahara group, he said, while adding that the fact remains that all actions taken against Sahara group were ordered by the Supreme Court.
“People are also saying that such sweeping powers should come with necessary safeguards, but the fact is that there are many safeguards that have been provided under the ordinance,” he said.
According to sources, certain corporate lobbies have also been very active against the Ordinance, but the government’s dilemma is two-fold in this matter.
If they allow the ordinance to lapse, and some other type of illicit deposit-collection scheme comes to the fore, the government will have no defence, another senior official said.
“Besides, the Congress party would make this an issue and say that the last government went out of way to get this Ordinance promulgated three times, including at a time when the election code of conduct was in place,” he added.
The official further said: “The Congress can say that the last government was committed to safeguard the interest of common investors and the new government has let this Ordinance lapse and let go the fraudsters scot free.”
On the other hand, the political pressure is rising on the new government against the Ordinance.
“Therefore, it is most likely that they would do some balancing job and water down some of the provisions. There can be more safeguards that can be put in place,” the official said.
While SEBI was established more than 25 years ago, it has got direct recovery powers to act against those refusing to pay penalties and other dues only through this Ordinance.
The new recovery proceedings include attachment of bank and demat accounts, attachment of movable and immovable properties, appointment of receivers for management of attached properties and arrest and detention of defaulters.
According to a senior official, SEBI has already completed recovery in many cases while recovery process is in advanced stages in many other instances.
Prior to the promulgation of the Ordinance, SEBI had to follow a time-consuming process of filing prosecution against the defaulters and fraudsters and the number of defaulters refusing to pay the dues had crossed 1,300 last year.
Besides, SEBI had also directed various entities to refund money collected illegally from investors through more than 600 unauthorised Collective Investment Schemes, wherein these entities had collected more than Rs. 1,500 crore.
In the absence of direct recovery powers, SEBI was not in a position to effectively enforce its orders earlier.
In the last two-three months, SEBI has been very active on attachment and recovery proceedings. While earlier it did not have right and enough manpower to handle such kind of work, SEBI sent its officers for training to Income Tax department and at least two rounds of such trainings have already taken place.