Mumbai, July 13: A committee finding ways to empower the capital market regulator more effectively has suggested that Sebi should be free to file wind-up suits against firms, much like the Reserve Bank of India (RBI).
The panel headed by Justice M. H. Kania also wants the watchdog to be able to frame regulations with retrospective effect on matters related to fees or procedures. These can be along the lines of the Income Tax Act. However, it has clarified that this is for giving relief and benefit, not for imposing new liabilities and obligations.
According to the group, giving Sebi more headroom on the two counts will help end some hardships faced by investors. The Sebi Act, which gives the board its legal force, was last tweaked in 2002 to make inspection, investigation and enhancement of penalties effective deterrents.
The Kania committee was set up as it was felt that some of the amendments made in 2002 itself needed to be fine-tuned to remove some of its ambiguities. The objective was that procedures for dealing with the failure of a market intermediary should be made tight enough to minimise loss to investors and contain systemic risks.
The RBI can file wind-up petitions against a non-banking finance company. The panel wants similar powers for Sebi. It spiked several suggestions, including one that proposed that Sebi Act should override other laws. It also felt the market cop should not be authorised to scrap certain transactions and securities. These, it said, were best done by a civil court.
The group also felt that empowering an administrative body like Sebi to directly attach bank accounts might not be a legally desirable proposition either. This should be achieved through a judicial magistrate.
The committee recommended a monetary penalty for those providing false information or making delayed filings. It also recommended that dividends or interest from mutual funds, collective investment schemes and venture capital funds lying unclaimed for over seven years should be credited to Sebiís investor protection fund.
The same yardstick will apply to unclaimed money or securities of a client lying with an intermediary in the stock market for more than seven years or cash unutilised in the investor protection funds of stock exchanges.
The committee affirmed that mutual funds would continue to be treated differently and would not fall within the ambit of a clause governing collective investment schemes.
In a bid to ease problems stemming from frequent retirement of members of the Securities Appellate Tribunal (SAT), the committee has recommended that the retirement age of the member be increased from 62 to 65 years.
It also suggested that the restriction on Sebi official to hold office in SAT ' the forum that hears appeals against Sebi orders ' be relaxed. Earlier, the rules prevented a person holding a post equivalent to executive director at Sebi from being appointed as a presiding officer or a member of SAT within two years of his exit. The group has recommended that this the restriction be brought down to a year from 2 years at present.
Kaniaís proposals follow hints from Sebi chief M. Damodaran on Monday about sweeping debt market reforms. The changes, to be proposed by the R. H. Patil Panel, will cover legal, regulatory, tax and market issues. The finance minister had emphasised the need to strengthen corporate bond market in his budget this year.