Former SEBI whole-time member MS Sahoo explains to CNBC-TV18, against the backdrop of the SEBI's proposed revision of the consent guidelines which have met with mixed feedback, that the new guidelines will ensure transperancy and punish defaulters more effectively.Sahoo adds that the guidelines also allows for more discretion for the regulator.
Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video
Q: Do you think the proposed new guidelines will bring in more disclosure and transparency?
A: I think your question is very pertinent. The new guidelines will definitely bring in a lot of improvement over the last guidelines. The consent settlement is always aimed at ending the litigation.
Some of the defaulters use to approach SEBI with repeated applications offering better and better terms of settlement and prolonging the proceedings indefinitely so that the basic purpose of consent was frustrated.
There were also a set of people who would settle a default and thereafter commit the same kind of a default again and seek settlement again. The order settling out the default was too brief to impart transparency and there were no timelines either for a delinquent to approach SEBI with a consent application or SEBI to dispose off the consent application.
The earlier structure didn't specify the specific roles of a high power advisor committee as well as internal committee. The new guidelines have made them formal.
Q: Under the new guidelines will the defaulters in cases like PwC and Reliance, whose consent was earlier denied, be able to reapply?
A: Technically, there are two aspects to this. As regards to the timeframe, the circular allows you one month to make a fresh application if a consent request has already been rejected.
As regards to seriousness, the circular clearly says that certain kind of offences which have substantially affected the interest of investors or which have materially affected certain interests and has wide market impact will not be allowed to be settled.
Q: Which means that PwC and Reliance may not be allowed to reapply?
A: The beauty of this is that the words used are 'serious', 'material', 'substantial' are subjective and legitimise the discretion of the authority.
Q: So the powers of discretion continue to rest with the market regulator. There were hopes that the new guidelines will at least diminish the powers of discretion. But you say that it continues to exist?
A: There is discretion at two stages: the first stage of discretion is on what kind of default should be allowed to be settled and the second is on what terms the defaults should be settled.
This new circular has brought in more discretion in the first stage and reduced the discretion at the second stage.
Q: You don’t believe that this penalty rate cut proposed by the SEBI will be a more effective mechanism?
A: This has a laudable objective that it will bring uniformity, commensurateness with the nature and gravity of valuation, but it will be occasionally underestimate or over estimate the terms of settlement and thereby deny settlement in deserving cases.
Q: Are we better off if these new guidelines were to be effective?
A: This consent mechanism allows settlement to be in monetary terms and also allows other suitable directions. These suitable directions are debarment from market, disgorgement for unlawful gains and compensation to people who have lost. If we rely more on settlement on non-monetary terms, which is more equitable to investors, public and corporate governance, this will achieve the purpose better. The approach should be to have more and more other kind of directions which are equitable.