The Telegraph
Since 1st March, 1999
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Advance ruling leash on expert opinion

Mumbai, Sept. 23: The Securities and Exchange Board of India’s plan to introduce advance rulings is aimed at discouraging experts from giving opinions in matters concerning the Takeover Code and other issues involving the regulator and the capital markets.

Recently, the regulator faced some flak for allowing members of Sebi-appointed committees to give opinions on issues involving Sebi rules.

Sebi, while discouraging committee members from giving opinions in matters concerning issues that are still being debated by a sitting committee in which they are members, has not been able to restrict some members from complying with the unwritten rule.

A recent instance is that of a Takeover Code committee set up by Sebi several years ago to formulate and recommend changes in the Code, where a prominent member in the committee gave opinions on several cases that came under the ambit of the Takeover Code. It is believed that the one of the motives of the market regulator was to nip such instances in the bud.

Corporates and market intermediaries like merchant bankers are expected to use this route to take crucial decisions that are whetted beforehand by the apex market regulator.

A “concept paper” has already been formulated by Sebi. However, there are cynics who ask whether Sebi would be bound by such advance rulings. There are differences in the interpretation of many statutes and there could be two opinions.

Advance rulings would help erase the grey areas and the confusion in the minds of the corporates and other interested parties as they need not go through a transaction if it does not have Sebi’s advance consent.

It will enable the companies or merchant bankers to stand on firm ground later with regard to their proposals, as the advance rulings will virtually be a green signal from the market regulator.

Legal circles say it could be used when companies come up with buyback proposals and open offers and could obtain Sebi clarification beforehand, instead of their proposals being challenged later on due to omissions or commissions and thus struck down by Sebi.

However, senior Sebi officials said that the concept paper is still being prepared and it is too early to say which areas will be covered under the advance rulings.

It is also not clear whether the committee which will hear the “advance rulings” will be a single bench or comprise a few members, or if it will be headed by the Sebi chairman himself.

In fact, senior Sebi officials say that this concept of “advance rulings” already exists with other agencies like the Customs & Excise and the Income Tax department. The concept of “advance rulings” is provided for in the Customs and Excise Act and the Income Tax Act. There is no such provision for Sebi, in the SCRA and therefore it might take some time for Sebi to get this concept up and running.

For Sebi, introducing the new concept would need not only the board’s approval but also require a amendment in the Sebi Act.

However, these advance rulings will require the parties seeking a view from the market regulator to pay a fee up front to hear their cases. This is in line with the prevailing concepts world-wide.

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