In a major boost to the capital markets regulator Sebi, the government has widened the scope of its power by allowed it to pass orders like search and seizure, attachment of properties, arrest and detention of defaulters and pass disgorgement directions to recover the wrongful gains made in contravention of laws.

 

At the same time, the government has also allowed Sebi to seek information from other regulators within India and abroad with retrospective effect, paving way for collection of details pertaining to cases pending for over 15 years now. In another retrospective change, which forms part of the Securities Laws Amendment Ordinance promulgated by the President last week, the individuals and companies being probed by Sebi can settle their pending investigations. Such settlements can be undertaken in cases that are currently pending for more than six years.

 

To tackle the growing menace of ponzi schemes being floated as collective investment schemes (CIS), the rules have also been amended to classify any money collection of Rs 100 crore or more as CIS operation. Sebi has been given powers to crack down on illegal investment schemes floated by individuals as well, as against companies only as of now.

 

However, all government-notified schemes would be out of the CIS framework. The changes are part of as many as 22  amendments made by the government in three main Acts governing Sebi and its operations — the Securities and Exchange Board of India (Sebi) Act, the Securities Contracts Regulation Act (SCRA) and the Depositories Act — through a 16-page Ordinance.

 

Among others, Sebi has also been given powers to pass disgorgement orders for amount equivalent to wrongful gains or to losses averted by contravention of regulations.  Besides, the regulator can now enter and search buildings, places, vessels, vehicles and aircraft of defaulters. Its officers can also break open the lock of any door, box, locker, safe almirah, etc to get information from suspected entities.

 

At the same time, the defaulters can seek settlement of pending cases with Sebi with retrospective effect from April 20, 2012. The Ordinance also allows the government to set up as many special courts, as required, to expedite hearing of cases involving contravention of securities laws. Sebi has also been given direct powers to attach properties and bank accounts of persons and companies failing to comply with directions, involving payment of penalties, refunds to the investors and other dues. The regulator can also order arrest and detention of defaulters in prison. The powers to seek information from other domestic and foreign regulators have been made effective retrospectively from March 6, 1998.

 

For seeking information from outside the country, Sebi can enter into an arrangement, agreement or understanding with relevant foreign authorities with the prior approval of the central government. At the same time, Sebi can now ask for information or records from any person, banks, authorities, boards or corporation, if the regulator is of the opinion that such details could be relevant to any investigation or inquiry being undertaken by it.

 

With regard to its new search and seizure powers, Sebi can also access the documents maintained in the electronic format.