Finance ministry mulls time limit on Sebi show-cause notices

New Delhi: The finance ministry is considering a proposal to fix a time limit for show-cause notices by the Securities and Exchange Board of India (Sebi) to ensure proceedings are time-barred and cases aren't initiated beyond a certain period. Sebi's inputs have been sought and an amendment to this effect could be included in the February 1 finance bill, a government official said.

He added that there could be a possibility that Budget may announce the move and then amendment in the Sebi Act notified separately.

The capital market regulator will be restricted from initiating proceedings or sending notices in old, pending matters, according to the plan. Currently, the Sebi Act doesn't specify a time limit.


"Sebi is examining the backlog in adjudication and inquiry matters and will accordingly give the status report," the official told ET.

The ministry has left it to the regulator to suggest the period. Inter-departmental discussions have been held on introducing such a limit in line with that for other law enforcement agencies.

Another official said it could be along the lines of the Income-Tax Act. The government had reduced the limit for reopening tax assessments to three years from six in the FY22 budget. The official said that the final decision would depend on Sebi's inputs.

"This seems to be a reasonable demand, said Lalit Kumar, partner, J Sagar Associates.

SAT Recently Quashed Sebi Order
"There are several legislations including Indian tax laws and FEMA which provide for sunset clauses, where adjudication proceedings cannot be initiated after a certain period of time. This time limitation can ensure certainty for both the regulator and the affected entities," Kumar said.

The Association of National Exchanges Members of India (ANMI) had also raised the issue in its pre-budget representation to the finance ministry. Delays result in "several proceedings being initiated by Sebi several years after the alleged violation, resulting into unnecessary hardship and grave prejudice to market participants and affects their ability to effectively respond to such show-cause notices", the grouping said in its representation.

The Securities and Appellate Tribunal (SAT) recently rebuked an adjudicating officer for the delay in issuing a show-cause notice in a seven-and-a-half-year-old matter and quashed the order issued by Sebi.

In FY21, Sebi began adjudication proceedings in 291 cases and disposed of 440. At the end of March 31, 2021, 488 cases were pending for action. Of these, 189 cases were older than two years.