| (From left) Bengal Chamber of Commerce and Industry president S. K. Dhall, executive director of Icra Naresh Thakkar and executive director of Sebi Pratip Kar at a seminar on corporate governance in Calcutta on Tuesday. Picture by Kishor Roy Chowdhury
Calcutta, Oct. 1: The Securities and Exchange Board of India (Sebi) will encourage state governments to take penal action — press criminal charges — against market participants found guilty of “misdemeanours and misconduct in the capital markets”.
Sebi’s executive director in charge of the secondary markets, Pratip Kar, said: “We will continue to exercise the powers vested with Sebi in punishing offenders, but they are limited. For instance, we cannot press criminal charges. So we will encourage state governments to take punitive action against intermediaries threatening the integrity of the market.”
Referring to the action taken by the Bengal government against brokers of the Calcutta Stock Exchange (CSE), Kar said the market regulator not only welcomed the move, but was also “supportive of it”. “Whoever helps us maintain the integrity of the markets and punish the wrong-doers is welcome,” he said.
“I think the Bengal government’s action is the first of its kind, and it was a very positive step. All that Sebi could do was suspend these brokers from the markets, and subsequently cancel their registration. We did these things long back,” he added, hinting that such action was not adequate.
It is clear now that the steps taken against the defaulters by the Calcutta Stock Exchange and the Calcutta Police was planned in consultation with Sebi.
Senior officials of the Calcutta Stock Exchange said, besides Sebi, some members of the Joint Parliamentary Committee, too, had advised the bourse to file criminal charges against the defaulters. Most of the defaulters had repeatedly avoided deposing before the committee probing the scam.
Though stock market experts lauded Sebi’s decision of joining hands with the states in taking offenders to task, they say some legal issues should be sorted out to make the alliance between the market regulator and other agencies of the state stronger.
“You cannot punish a person twice for the same offence. If steps taken by Sebi against a broker under the Securities Contract (Regulations) Act are punitive in nature, the police should not step into the matter and punish him again for the same offence.
“It would be better to amend the laws governing the securities markets and introduce a clear provision for action by other agencies of the state if laws are broken,” a senior lawyer pointed out.
Co-operation between the police and the market regulator in probing and punishing irregularities in the capital markets may open a Pandora’s box, brokers say. Sebi had unearthed a number of cases of price manipulation following the market upheaval in March last year. Criminal charges may now be pressed against the brokers and company officials found guilty of rigging share prices.
Kar had come to Calcutta on Tuesday to address a seminar on corporate governance, where he said corporate governance ratings would soon be just as relevant as rating of debt instruments.
CSE directors quizzed
The police interrogated two former directors of the Calcutta Stock Exchange, including ex-president Kamal Parekh, and raided a few more offices today. So far, six brokers and an employee of a stockbroking firm have been arrested in connection with last year’s scam.