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New norms for settlement of default proceedings mooted by SEBI.
Oct 15, 2013

SEBI has proposed new norms for settlement of administrative and civil proceedings against suspected market defaulters, except in cases of serious violations like illicit pooling of funds from investors, insider trading and fraudulent and unfair trades.

Features of the new norms are:

The terms of settlement may include payment of a settlement amount and other related costs, voluntary suspension of registration, closure of business and other appropriate directions.  The settlement amount will be credited to Consolidated Fund of India, while legal costs will go to the SEBI General Fund. Whereas, the disgorged illegal gains, if any, will be credited to the Investor Protection and Education Fund of Sebi.

Exceptions to the new norms are:

The market regulator has said that a plea to settle pending cases, upon payment of settlement charges and related costs, will not be considered if the applicant has already been party to two earlier settlements.

Besides, cases already pending before a court or tribunal cannot be settled under the new norms. An entity cannot seek settlement of any proceedings if the alleged default has been committed within two years of an earlier settlement involving them.

Also, settlements cannot be sought for cases involving non-compliance to SEBI orders, violations to the open offer requirements, listing disclosure norms, front running, sharing of unpublished price-sensitive information, manipulative practices of mutual funds, and failure to redress investor grievances, among other serious offences. An entity can't seek settlement of any proceedings if the alleged default has been committed within two years of an earlier settlement involving them. 

Provision related to Advisory committee under new norms:

As per the proposed norms, SEBI will constitute a high powered advisory committee for the consideration and recommendation of the terms of settlement.The committee will consist of a retired Judge of a High Court and three external experts having knowledge in the securities market. The quorum of committee would be three members.  The members of the committee are proposed to be appointed for three years which can be extended for a further period of up to two years.  Besides, SEBI will form internal committee(s) for assisting the high powered advisory committee.  While considering the settlement application, the committee will consider various factors such as the objective of the securities laws, the interests of investors and capital markets and whether the alleged default by the applicant is intentional. 

Background:

The new norms have been proposed pursuant to promulgation of the Securities Laws (Amendment) Second Ordinance, 2013 by the President last month, which conferred explicit powers on SEBI to settle administrative and civil proceedings under relevant sections of the SEBI Act, the SCRA Act and the Depositories Act.  The Ordinance provides that SEBI, after considering the nature, gravity and impact of defaults, can agree to the proposal for settlement, on payment of certain charges and compliance to other terms and conditions.  While a consent mechanism is already in place at SEBI for settlement of cases involving certain alleged violations, the new norms will give wider powers to SEBI for settlement of administrative and civil proceedings within a legal framework. 

 


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