Definite need to expand scope of Sebi's power: Expert

The finance ministry’s move to amend the Securities Law in order to enable Sebi to regulate collective investment could be reactive, as it follows recent scams, but there definitely is need to expand the scope of the market regulator’s power, says Sandeep Parekh, founder, Finsec Law Advisors.

Talking to CNBC-TV18 he says that as Ponzi schemes are proliferating at the district level, Sebi, with its manpower of 600 people would find it difficult to enforce the powers vested with it, so it should be given support from the state governments and other authorities. Here is the edited transcript of his interview with CNBC-TV18 Q: The cabinet note by the finance ministry has been moved, that is what we are picking up from our sources. In a sense just like we saw the Companies Bill being overhauled largely to accommodate cases like Satyam, the finance ministry seems to be keen to push this through to take into consideration the chit fund scam, the Shardha scam, to take into consideration the Sahara saga, wouldn’t you say? A: Yes, and in fact most regulation is reactive in nature. If you look at the bulk of Sebi regulations which occurred, they were a kind of a reaction to the Harshad Mehta and Ketan Parekh scams. Post-Satyam also, Sebi came out with these amendments through regulations. So, regulations do tend to be reactive, they try to address at least problems of the recent past. Q: So given the current environment, do you believe that we are actually going to see a big push? There seems to be a push on part of the government, do you see all of this being implemented? Do you actually see the Securities Law being amended to take all of these things into consideration, especially when it comes to things like monitoring the collective investment schemes, bringing it under the ambit of the market regulator? A: I will divide your question into two parts. I think the first part is the big issue, which is the Ponzi schemes which proliferating at the district level. These are at very small levels and Sebi, with its manpower of 600 people would find it difficult to kind of enforce it, unless they get cooperation from the state governments etc. But I think there is a need to expand the scope of Sebi’s power over these kind of Ponzi schemes, and maybe expand the definition of Collective Investment Schemes (CIS) to include not just classic CIS like plantation schemes, but also Ponzi schemes, which are not really collective effort, they are just swindling rackets, so that’s the first part. The other part what you spoke about consent, disgorgement etc. those are existing powers. I think the effort is to kind of give Sebi explicit powers as oppose to implicit powers because has been disgorging amount. Sebi has been doing consent order and the third part is obviously search and seizure, which gives Sebi police powers. Q: Speaking of giving the explicit powers for instance in the Sahara matter, Sahara’s contention is that Sebi is gone beyond its reach and it actually cannot attach property and the court is also now said that Sebi while it can attach cannot actually sell the property. So, in a sense the explicit powers to be granted that would make a huge difference? A: Sahara is more of a sui generis case. It is because the Supreme Court ordered so, Sebi was able to attach. So, this will be kind of a specific additional power that Sebi is permitted to attach properties directly if violator does not pay up. It will be a significant addition to Sebi’s power. Q: I was reading you piece and you said that at the end of 25 years Sebi is not Angelina Jolie or Lara Croft. If indeed all of this does go through and we see these amendments being made, which one would you reckon Sebi will be - Angelina Jolie or Lara Croft? A: Both those references were with reference to Angelina Jolie’s recent prophylactic action to prevent cancer, so, basically being proactive even before the problem has fructified. Similarly Lara Croft catches the bad people before they press the nuclear button. Sebi by its nature ends up being reactive but it can make a huge difference if its reactive very quickly after the problem arises as opposed to after 3 or 10 years when everybody has been swindled and all the money has gone. These are significant powers and significant powers also must have checks and balances in place. So, I hope they have sufficient checks and balance to ensure Sebi does not have too much untrammeled power.