Sebi to consider legal cost recovery from penalties

With many of its orders getting challenged in tribunal and courts, Sebi wants to recover legal expenses incurred in such litigations from penalties imposed by it on defaulters before crediting the same to the government's coffers.

The capital markets regulator has incurred litigation expenditure in the range of Rs 4-5 crore in each of the past three financial years, while such expenses could be even higher in the current fiscal ending this month.

Besides, Sebi may also consider charging 'processing fees' for various service requests from companies, stock exchanges and market intermediaries, as many of such services are being provided for free despite significant costs incurred by the regulator in such matters, sources said.

Fees are proposed to be levied on all service requests, barring investor complaints, in accordance with the processing time, cost and procedures involved. Besides, fees can be hiked for services like informal guidance and consent settlement.

These proposals are likely to be considered by Sebi board later this week and are based on recommendations made by a Committee on Rationalisation of Financial Resources (CRFR), which has also suggested an upward revision in certain existing fees charged by the regulator from companies and market intermediaries, a senior official said.

The recommendations have been made to beef up Sebi's financial resources to help it meet expenses for its various regulatory and investor-centric activities. The committee has submitted its report to Sebi after detailed discussions and a "thorough study" of various parameters.

With regard to legal costs, the panel has recommended remittance of net proceeds of penalties collected by it to the Consolidated Fund of India, as against current practice of gross proceeds being credited to the government account.

Pursuant to notification of Sebi (Amendment) Act, 2002, all sums realised by way of penalties need to be credited to the Consolidated Fund of India. Prior to this amendment, all sums collected as penalties were retained by Sebi.

However, the CRFR observed that many orders passed by Sebi were getting appealed against in the Securities Appellate Tribunal (SAT) and some of them even go to the Supreme Court.

As a result, Sebi was incurring significant legal expenses in its attempt to uphold the validity of its orders and the panel felt that it would be appropriate if the net proceeds of penalties, after deducting the legal expenses incurred, only be credited to the Consolidated Fund of India.

With regard to the services proposed to be charged by Sebi, the panel has suggested Rs 50,000 fee for permission to set up Wholly Owned Subsidiary Abroad, and Rs 10,000 each for requests such as change of custodian, change in registered office or name and change in managing director.

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