Sebi’s tardiness in investigating and closing cases is cause for concern
Sep 01 2013, 2046
The Securities and Exchange Board of India, is accustomed to criticism. As a regulator, Sebi, need not be, and should not be, deterred by it, particularly when the critics are market intermediaries who do not like being subject to stringent checks. But it should be a matter of great concern to Sebi if the criticism comes from a judicial body, particularly the one before which appeals can be made against Sebi’s rulings and strictures. Last week, the Securities Appellate Tribunal ruled on a handful of appeals against Sebi’s past directives. Of these, four went against Sebi and its orders were quashed. This is neither exceptional nor does it necessarily indicate that Sebi is always wrong. But some of the comments made by the three-member SAT panel point to the investigative mechanism gone awry within Sebi. In one of the appeals ruled upon last week, SAT took strong objection to Sebi’s evasiveness in supplying complete order and trade logs to the appellant broking firms, which were accused of volume manipulation. The SAT panel found it unacceptable and misconceived that Sebi had asked the appellants to obtain the documents from other sources such as stock exchanges. SAT feared Sebi’s denial to any entity of proper and full access to relevant documents could imply that “accused entities may adopt legal or other unfair or dilatory means for the procurement of relevant documents”. The SAT panel brought to Sebi’s notice that “non-supply of relevant documents, in proper time and legible form, is the responsibility of the concerned adjudicating officer.” Sebi also attracted a lot of flak from SAT for taking a decade to complete investigations and give its final order in May 2012 on a case involving trades executed during August-December 2000 and where the show cause notice was given to the broking firms in September 2005. The SAT panel expressed its shock at Sebi taking four-and-a-half years to file a show cause notice and said the time taken to complete the investigation was “unnatural”. SAT admonished Sebi saying that allowing matters to go on and on for years served no purpose other than to risk loss of evidence. SAT was dismayed that “such systemic failures occur to the disadvantage of all parties concerned and lead to consequences such as genuine violators being allowed to function normally in the capital market for years together, whereas in some situations the reputation of innocent entities gets tarnished as they wait for the wheels of justice to turn a bit faster than the pace at which they seem to be going.” Clearly, last week was a rare one when SAT went beyond ruling in favour or against Sebi’s orders, and pointed to major deficiencies in Sebi’s investigative mechanism. Sebi’s latest annual report reveals that for over half the number of cases it has handled so far, the watchdog has taken four to 10 years between launching an investigation and its final disposal. SAT’s ruling last week brings forth the urgent and long-pending need for Sebi to shore up its investigative process with transparency, speed and fairness. This is important not only to the alleged violators, but to the rest of the investors and the market, as not doing so gives a chance to actual violators to escape punishment. The regulator also causes long-term damage to the entire system when it is not efficient and fair. Sebi needs to mind its business on this.