Financial Daily from THE HINDU group of publications
Sunday, Jun 23, 2002
Columns - Eye on the market
S. Vaidya Nathan
THE number of major decisions of the Securities and Exchange Board of India against companies and market players getting overturned is a cause for alarm. This shows up gaps in SEBI's decisions, leading to their dismissal in the appeals stage.
If this continues, it could impair SEBI's credibility with respect to the interests of investors and the market. The regulator needs to take notice. It also needs to examine whether extraneous influences, if any, in the decision process are impairing their quality.
The SAT blow: In the past week, the Securities Appellate Tribunal (SAT) the appellate authority for SEBI decisions overturned the SEBI orders in the BPL and Videocon cases. SEBI had prevented these two companies from accessing the capital market for two and four years respectively, for their role in the 1998 stock market crisis that led to the Bombay Stock Exchange's closure for a few days.
Price manipulation was at the core of the SEBI decisions. It had also ordered prosecution of the officials of these companies in a court of law. But the SAT set aside the order disallowing capital market access for BPL and Videocon.
A comprehensive rejection: The SAT order rested on the following points:
This is a comprehensive indictment of the original order; the order was not even set aside on some technicalities.
Not the first instance: Sample the number of SEBI orders that have been overthrown by the SAT or other appellate authorities:
Lack of spadework: From a routine annual accounts case to a complicated insider trading case, SEBI orders have been over-turned.
This clearly suggests that there is something seriously amiss with SEBI. A few areas where there may be gaps:
Lack of thorough preparation required in such cases.
Inability to act in time to nail possible deviations and market manipulations.
If actions are initiated in belatedly (as happened with BPL, Sterlite and Videocon), SEBI would increasingly find it difficult to nail down offences.
The lack of legal backing points to the absence of sound legal interpretation of the do's and don'ts for SEBI under various provisions.
It also points to the need for bolstering the quality of legal advice SEBI gets. Companies hire top-notch talent and, therefore, SEBI too should spare no expense in this regard. Only then can it take on the companies.
SEBI needs to ensure that it exercises its penal powers on proper grounds and leaves no room for reversals, a la BPL, Videocon.
SEBI must also ensure that major violations of markets and investors' interests are handled by skilled staff to make its case and decisions stronger than has been the case so far.
Last, but not least, SEBI must be on perpetual guard to ensure that extraneous influences have absolutely no room in its decisions, timing of actions and the manner it handles cases.
Poor conviction rate: The SAT dismissals of major SEBI orders show a poor rate of conviction.
The rate of conviction is a key indicator of the regulator's effectiveness. SEBI comes off poorly here and if it does not learn from these experiences, it may find its effectiveness as a regulator weakening especially when major offences happen.
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