Govt should have waited for scam report before amending Sebi Act

The central government, on October 29, promulgated and notified an ordinance called `The Securities and Exchange Board of India (Amendment) Ordinance, 2002â€™. The aforesaid ordinance (Sebi Ordinance) seeks to amend the Securities and Exchange Board of India Act 1992 (the principal Act). The amendment to the principal Act has been the subject matter of deliberation and discussion for well over two years. The Joint Parliamentary Committee has not yet submitted a final report on its findings on the securities scam. In fairness the observations and suggestions made by the said committee should have been taken into consideration before rushing with an ordinance to the principal Act, more so because, during the course of deposition before the JPC, the erstwhile chairman of Sebi and other officials pleaded lack of power and authority when confronted by the JPC. The preamble to the ordinance states that the President â€œis satisfied that circumstances exist which render it necessary for him to take immediate actionâ€�. Frankly, in my view, no such urgency exist warranting immediate action even as the Parliament is expected to reassemble for the winter session on or about November 18. I may be pardoned for saying that it has become a fashion to rule through ordinances as is evident from the spate of ordinances recently promulgated bypassing Parliament and members of Parliament must in their own interest evolve a guideline for the issuance of ordinances as such measures impinge their privileges. Let me now deal with the salient features in brief: Section 4 of the principal Act is being amended so as to mandate the appointment of a minimum of three whole-time members to the Board thereby increasing the strength to nine. This is a welcome move. In this context, empowering the chairman to â€œexercise all powers and do all Acts and things which may be exercised or done by the Boardâ€� is rendered redundant. This can be misconstrued as the power to veto the decisions of other members. Inspection of books, records: Sweeping changes are sought to be made in the operative provisions contained in Chapters IV and V, to be precise in sections 11, 11A, 11B and 12 which have been the subject matter of litigations and exit route for the issuers and intermediaries. Sub-section (2A) has been added to section 11 of the principal Act empowering Sebi to take measures to undertake inspection of any book, or register or other documents or records of any listed public company or a public company which intends to get its securities listed on any recognised stock exchange. The entire concept of the amendment creates a new category of public companies. The yardstick to determine this segment is not provided in the Act in the absence of which it may be clarified that this will embrace those public companies who may announce their intention to access the public for subscription. The amendment also includes the power to suspend trading of any security, restrain persons from accessing the securities market, suspend office bearers of a stock exchange, attach bank accounts and other transactions (after passing of an order by a judicial magistrate) so far as it relates to the proceeds actually involved in violation by due process of law as prescribed therein, impound the proceeds et al. Bar on issue of offer documents: Section 5 of the Sebi Ordinance replaces the present section 11A of the principal Act by a new section. The newly introduced provision empowers Sebi, inter alia, to prohibit by general or special orders any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for issue of securities or may impose conditions subject to which such material may be issued. Search and seizure: A new section 11C is introduced in the principal Act by section 6 of the Sebi Ordinance which covers the controversial area, `search and seizureâ€™. This arms Sebi, where it has reasonable grounds to believe that transactions in securities are being dealt with in the capital market in a manner detrimental to the interests of the securities market, to order investigation and also issue directions for the production of books and other relevant records (which may be kept in the custody of the investigating authority). Further details of this amendment and other changes are dealt with in the concluding part. ( To be continued)

Govt should have waited for scam report before amending Sebi Act

The central government, on October 29, promulgated and notified an ordinance called `The Securities and Exchange Board of India (Amendment) Ordinance, 2002'. The aforesaid ordinance (Sebi Ordinance) seeks to amend the Securities and Exchange Boa...

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