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SEBI pins hopes on out-of-court settlement concept

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SENDING OUT A WARNING: M. Damodaran, Chairman, SEBI (right), addressing an awareness programme organised by the Tamilnadu Investors' Association in Chennai on Monday. Photo: S. S. Kumar
SENDING OUT A WARNING: M. Damodaran, Chairman, SEBI (right), addressing an awareness programme organised by the Tamilnadu Investors' Association in Chennai on Monday. Photo: S. S. Kumar

Staff Reporter

This will also generate money for its proposed Investor Education and Protection Fund This will also generate money for Investor Education and Protection Fund

CHENNAI: Companies taking investors for a ride could soon be paying to protect the very investors they tried to dupe.

The Securities and Exchange Board of India expects that `consent orders,' or the out-of-court settlement concept, which it is introducing to clear its backlog of pending cases, will have the added benefit of generating money for its proposed Investor Education and Protection Fund.

Addressing an awareness programme organised by the Tamilnadu Investors' Association, SEBI chairman M. Damodaran said the fund would be set up by the year-end if the SEBI Amendment Bill was introduced and passed in the current session of Parliament.

The SEBI had proposed that fines and penalties slapped on defaulting companies should be paid to the SEBI-administered fund instead of the Consolidated Fund of India. The regulator estimated that it could have raised a little over Rs. 5 crore the previous year by this method.

Now that the regulator plans to introduce consent orders, this figure could rise considerably as the settlements collected would also contribute to the fund.

Advisory panel

Mr. Damodaran said an advisory committee, headed by a retired judge, might be set up next week to consider thousands of pending cases, involving technical first offenders as well as repeat offenders, to determine which would take the consent order route.

"Once this is in place, SEBI will not have to go with a begging bowl to anyone else. We will be able to run investor camps ourselves... The best investor protection is investor education."

He offered some hope for investors who lost out in last year's multiple application IPO scam. An expert committee, headed by a retired Supreme Court judge, is being set up to identify investors who will be compensated through reallocation of shares.

While warning that this could be a complex process, Mr. Damodaran made it clear that the SEBI would not allow double benefits. "Those who get disgorgement money will not get shares."

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