The government in consultation with the Securities and Exchange Board of India (Sebi) is considering to make amendments in the Sebi Act that may lead to criminal prosecution of market offenders, The Economic Times reported on October 6, citing people familiar with the matter.
According to the report, in the new Act the government is planning to make it mandatory for the market regulator to prosecute certain kinds of offences.
Moneycontrol could not independently verify the report.
Presently, Sebi's powers are equivalent to that of a civil court. It passes penalty orders against entities that commit market offences. However, if the regulator wants to initiate criminal prosecution against any such market offender, it has to go through the regular courts.
The idea behind tightening the rules is to create a greater deterrent against securities market fraud. This move is in line with the Companies Act, under which certain violations can’t be settled through penalties.
Sebi and the finance ministry didn’t respond to queries sent by the ET.
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“In all developed countries, security market frauds like insider trading result in prosecution. Although Sebi has similar powers, the same have been used by the regulator very rarely,” a person with direct knowledge of the matter told ET. “If the proposed changes are finalised, Sebi will be mandated to prosecute the serious market offenders.”
In the past few years, Sebi hasn’t used its prosecution powers too often. To put it in perspective, in FY21, the market regulator initiated proceedings in 1,763 cases, out of which prosecution was started in three, the report said quoting Sebi’s annual data. In FY20, Sebi initiated action in 2,070 cases, of which only 10 involved prosecution, it added.
It may be noteworthy that Sebi can initiate proceedings against market offenders in any criminal court of the country depending on the location of the accused. But, due to delays in proceedings and higher threshold for evidence in regular courts, the market regulator has rarely chosen to exercise prosecution powers.
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