Corporate Governance

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					       Fostering Enforcement Mechanisms:
            The Regulatory Challenge
         Asian Roundtable Bangkok, 13 –14 -15 September 2006




                             Presentation
                                    by
                         M.K. Chouhan
           Chairman, Mahendra & Young Knowledge Foundation
Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance



Asian Centre for Corporate Governance
                  Empowerment issue

Adequate empowerment has been given to SEBI
 SEBI Act w.e.f. 1992
 Series of amendments have come since then :
1. 1995 – Monetary Penalties were included
2. 2000–Enforcement Powers / Investigation /
   Search / Seizures (Section 11 –C)
3. 2004 – Demutualization of stock exchanges
 Thus , SEBI is reasonably empowered

 Asian Centre for Corporate Governance
                    Obstacles & Barriers to
                     effective enforcement

Criminal prosecution :
 Regular courts very slow,
 Cases used to take very very long time.
 Normal courts busy with routine work
 disposal rate very low 12 – 13 cases in a year
 It takes 10 –12 years, therefore violator is not worried.
   Eg Out of 1000 cases filed most are at stage of summons.
Enforcement Obstacles :
   Power vested with other law enforcement agency like
   CBI or Police are not with SEBI.
  Asian Centre for Corporate Governance
                      Obstacles & Barriers to
                       effective enforcement

    If one particular firm is barred from dealing in Securities,
     People behind it may operate through alternate firm.
     Detection of these related firms is difficult.
     Separate powers for Enquiry, adjudication & administration –
     delay decisions
1. Enquiry Officer – Authority for Suspension of Certification
2. Member of SEBI – Authority to for Administration / Direction
   i.e. Debarring from operating in securities Market.
3. Adjudication Officer–Authority for Monetary Penalty



    Asian Centre for Corporate Governance
                       Indian Experience

     Two Designated Courts have been set up for SEBI
      prosecution cases at Mumbai & New Delhi
     With Oct 2002 SEBI amendment – SEBI can impose
      up to Rs 25 crore (US$ 5.5 mn) penalty e.g Recently
      Holicim a Swiss co. having JV with Indian Cement
      CO. has been imposed 25 crore (US$ 5.5 mn)
      penalty
      A Broker - Ketan Parekh has been debarred for 14
      years from dealing in Securities Market


    Asian Centre for Corporate Governance
                       Indian Experience

    After 2002 amendment, tiers have been reduced to only three
     : High courts are avoided.
The cases are settled in the following manner
SEBI to Securities Appellate Tribunal (SAT), to Supreme Court
    Issues of fact are settled in SAT
    Law related issues are settled in Supreme Court.




    Asian Centre for Corporate Governance
                  What should be done ?

Enforcement at various levels :
    Self Regulated Organizations (SRO’s) should be
     encouraged and empowered
    SEBI registered
     – Broker SROs
     – Mutual Funds SROs




    Asian Centre for Corporate Governance
       What needs be done ?

    Revenue Recovery Act being suggested
    Compensating the victims is not being done, only action
     against offender is being taken
    There is no specific provision in statute on disgorgement area.
     Thus such provisions should be brought.
    No power for confiscation of proceeds of Securities, during
     investigation. such powers should be brought
Eg. If fraudulent allotment is made by a promoter, it can be
   debarred for some time, but chances are that these securities
   might again come to the Market.


    Asian Centre for Corporate Governance
       What needs be done ?…


    Multiple Enforcement Action i.e Enquiry & adjudication,
     administrative powers, All these three powers should be under
     one single authority
    Investor awareness should be improved so that compliance
     can be quickened.
    Justice Karia Committee has given it’s report              &
     recommendations can be viewed on www.sebi.gov.in
    Effective Speedy enforcement
                    Justice delayed is justice denied

    Asian Centre for Corporate Governance
THANK YOU