In using the ordinance route to give sweeping additional powers to SEBI, the government is conveying a sense of urgency in plugging loopholes in capital market regulations. The absence or inadequacy of laws should no longer constrain SEBI from taking on the likes of the Saradha group in West Bengal or the Sahara Pariwar. The former failed after collecting huge sums of money through its Ponzi schemes, causing acute financial and social distress in eastern India. SEBI’s case against the Sahara group was buttressed by the Supreme Court, which ordered a refund of more than Rs.20,000 crore to investors. Yet, the company has been flouting the court’s orders even after being slapped with contempt notices. Down south, financial shenanigans have surfaced in Tamil Nadu and Kerala in the form of emu farms and dubious investments in solar energy. The Centre’s expectation is that a suitably empowered regulator would nip such financial misadventures in the bud. That might still be a tall order given that most recent scams have thrived by exploiting differences in the regulatory jurisdictions of SEBI and the RBI. The Indian financial code which has been drafted to address inter-regulatory issues has not found universal acceptance and will take time before it is adopted.
Hopefully, the Securities Laws (Amendment) Ordinance 2013 will not be allowed to lapse because of the legislative logjam in parliament. SEBI is a relatively young organisation. Both its creation and the grant of additional legal powers along the way have been in response to some crisis or the other. During most of its 25 years of existence, it has had to regulate entities such as share brokerages which often have more experience in the capital market. Many of SEBI’s early rulings were overturned on appeal, a record which has just started improving. A few urgent tasks confront the newly empowered board. It should strive to build up adequate resources, especially human resources, to effectively exercise its powers. There have been several instances where SEBI has not been able to use whatever limited powers it has had for lack of manpower. For instance, even though it was given permission way back in 2002 to effect searches and seizures after obtaining a magistrate’s order, it has used these powers just once and that too not very successfully. The new powers, sweeping as they are, ought to make the regulator both responsible and accountable. The government’s support to SEBI should be continuous and go well beyond promulgating ordinances.
