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Will SEBI Chairman's powers be defined?

Shaji Vikraman

CLOSE to 8 months after work first started on amendments to the SEBI Act, a revised note for Cabinet approval is now in the process of being finalised.

A month ago, after the Cabinet Secretariat returned the draft Cabinet note on amendment in the SEBI Act to the Finance Ministry, a meeting was set up between the SEBI Chairman and top officials in the Ministry to discuss the proposals further.

Up for discussion this time were the powers of the Chairman. In the case of the banking regulator — the RBI, the Governor is vested with emergency powers under the RBI Act. Similarly, the UTI Act provides for emergency powers for the full-time Chairman, who can exercise all powers, which are exercisable usually by the board.

The SEBI Act also provides forsimilar powers to the Chairman. However, on policy issues, it is clear that the board needs to have a say.

The UTI Act, for instance, says that if the chairman is of the opinion that circumstances exist which render it necessary for him to take immediate action in respect of any matter which is within the competence of the board, and that the interest of the Trust may be prejudicially affected, if such action is deferred until after the next board meeting, he may take such action and exercise all the powers of the board.

However, such emergency powers for the Chairman are not so explicitly stated in the SEBI Act. A fine-tuning of the provision may well be under way.

The moot point is whether this needs to be done when the Government is now proposing to have four full-time members on the SEBI board, besides the Chairman. With five full-time members on the board, in line with the Securities and Exchange Commission, US, perhaps the opportunity to exercise such powers may be very limited unlike in the case of UTI and RBI.

The fundamental difference in the emergency powers outlined for the RBI Governor, the UTI Chairman and the SEBI Chairman is that except for the capital market regulator, the other two institutions do not have full-time members on their boards. The UTI does not have any full-time board members, apart from its Chairman. Similarly, none of the Deputy Governors of the RBI are on the board of directors. Viewed from this perspective, the emergency powers for both these institutions seem quite in order.

With the Government now proposing to impose a maximum penalty of Rs 25 crore for capital market offences, the issue of compounding of contravention or penalties is also being addressed.

In another statute — the FEMA- the powers to compound is vested with the Director of Enforcement or such other officers of the Directorate of Enforcement and officers of the RBI. It is not yet clear whether the SEBI will be vested with powers to compound such contraventions.

There is a view among capital market and legal experts that the monetary penalties which are collected should go to the Government kitty, rather than to SEBI to help the regulator meet its expenditure. That could be met through the fees collected by the regulator. Such hefty fines are imposed through legislation as such offences are viewed as a crime against the State. The monetary penalties which are collected should go to the State, goes the argument.

With the changes to the Act being finalised, this is as good a time as any to review the rules governing the terming conditions for the Chairman of regulatory agencies.

Considering the challenges in the capital market it is a debatable issue whether those who retire at 60 from the Government and then go on to serve as a watchdog can fit the bill in terms of mental and physical agility, as well as expertise in a particular field. With regulators being at the most quasi-judicial bodies, it is difficult to fathom why the age bar should have been placed at 65, instead of 60 for them.

Obviously, this is designed to promote members of the civil service, who are now preparing to serve post-retirement _ in that thriving mini cottage industry which has opened up during the last five years — in regulatory bodies.

A mandatory two year cooling-off period for those serving as regulators after they step down also needs to be stipulated in the rules for appointment so as to avoid controversies.

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