2. Asian Centre for Corporate Governance Fostering Enforcement Mechanisms: The Regulatory Challenge Asian Roundtable Bangkok, 13 – 14 -15 September 2006 Presentation by M.K. Chouhan Chairman, Mahendra & Young Knowledge Foundation Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance

3. Asian Centre for Corporate Governance Empowerment issue Adequate empowerment has been given to SEBI ä SEBI Act w.e.f. 1992 ä Series of amendments have come since then : 1. 1995 – Monetary Penalties were included 2. 2000–Enforcement Powers / Investigation / Search / Seizures (Section 11 –C) 3. 2004 – Demutualization of stock exchanges Thus, SEBI is reasonably empowered

4. Asian Centre for Corporate Governance Obstacles & Barriers to effective enforcement Criminal prosecution : ä Regular courts very slow, ä Cases used to take very very long time. ä Normal courts busy with routine work ä disposal rate very low 12 – 13 cases in a year ä It takes 10 –12 years, therefore violator is not worried. Eg Out of 1000 cases filed most are at stage of summons. Enforcement Obstacles : Power vested with other law enforcement agency like CBI or Police are not with SEBI.

5. Asian Centre for Corporate Governance Obstacles & Barriers to effective enforcement ä If one particular firm is barred from dealing in Securities, People behind it may operate through alternate firm. Detection of these related firms is difficult. Separate powers for Enquiry, adjudication & administration – delay decisions 1. Enquiry Officer – Authority for Suspension of Certification 2. Member of SEBI – Authority to for Administration / Direction i.e. Debarring from operating in securities Market. 3. Adjudication Officer–Authority for Monetary Penalty

6. Asian Centre for Corporate Governance Indian Experience ä Two Designated Courts have been set up for SEBI prosecution cases at Mumbai & New Delhi ä With Oct 2002 SEBI amendment – SEBI can impose up to Rs 25 crore (US$ 5.5 mn) penalty e.g Recently Holicim a Swiss co. having JV with Indian Cement CO. has been imposed 25 crore (US$ 5.5 mn) penalty A Broker - Ketan Parekh has been debarred for 14 years from dealing in Securities Market

7. Asian Centre for Corporate Governance Indian Experience ä After 2002 amendment, tiers have been reduced to only three : High courts are avoided. The cases are settled in the following manner SEBI to Securities Appellate Tribunal (SAT), to Supreme Court ä Issues of fact are settled in SAT ä Law related issues are settled in Supreme Court.

8. Asian Centre for Corporate Governance What should be done ? Enforcement at various levels : ä Self Regulated Organizations (SRO’s) should be encouraged and empowered ä SEBI registered – Broker SROs – Mutual Funds SROs

9. Asian Centre for Corporate Governance What needs be done ? ä Revenue Recovery Act being suggested ä Compensating the victims is not being done, only action against offender is being taken ä There is no specific provision in statute on disgorgement area. Thus such provisions should be brought. ä No power for confiscation of proceeds of Securities, during investigation. such powers should be brought Eg. If fraudulent allotment is made by a promoter, it can be debarred for some time, but chances are that these securities might again come to the Market.

10. Asian Centre for Corporate Governance What needs be done ? … ä Multiple Enforcement Action i.e Enquiry & adjudication, administrative powers, All these three powers should be under one single authority ä Investor awareness should be improved so that compliance can be quickened. ä Justice Karia Committee has given it’s report & recommendations can be viewed on www.sebi.gov.inwww.sebi.gov.in ä Effective Speedy enforcement Justice delayed is justice denied

11. THANK YOU