The good news is that you can now settle your disputes with Sebi (the Securities and Exchange Board of India) through across the table negotiations and discussions rather than fighting it out in court.
The bad news is that the so-called “guidelines” issued by Sebi for this are quite raw and probably experimental and hence will need a lot of thought and efforts from both sides in the initial period.
The guidelines issued by Sebi for this purpose, peculiarly in the form of “FAQs”, deal with how disputes with Sebi may be settled. Comparable to plea-bargaining in the west and analogous to compounding procedures we have in other laws, the FAQs on Consent Orders and Compounding (let’s call it the “Settlement Scheme”) helps both Sebi and the accused in avoiding costly and time-consuming procedures and litigations.
Of course, disputes will almost always be one-way, in the form of Sebi accusing a person of having committed a civil violation or an offence though, interestingly, in theory, a claim can also be made by a person against Sebi.
However, we are talking here of Sebi accusing a person of violations of securities law resulting in broadly two types of consequences. Where the consequence is other than prosecution, say, in the form of suspension or cancellation of certificate, monetary penalty and so on, the accusation can be settled in the form of a Consent Order which may result in the form of monetary penalty, certain directions for future conduct, correction and so on. Where there is prosecution, the accusation can be settled through compounding where a compounding charge may be paid.
The objective clearly is that both sides come halfway forward and save time, effort and money otherwise spent in establishing the wrongdoing by Sebi and its defence by the accused. It is expected that Sebi will levy lesser penal and other consequences than it would have levied if the guilt was fully established. The accused may, in turn, end up suffering something which it may not have suffered if it was found guilt-free by the authorities but it agrees to this to avoid costs and effort. Needless to say, the accused does not necessarily have to admit guilt. Further, importantly, the accused, if the compounding is accepted, avoids going behind bars!
The broad procedure is that the party may approach at any time while the proceedings are alive. Strangely, one cannot, suo motu, ask for settlement without being accused of a violation. A person may realise that he has committed a wrong doing and may want to confess and close the matter but this apparently is not permissible. Of course, such a person can, if he wishes, always go and confess the crime and request Sebi to commence the proceedings so that he can go for the Settlement Scheme!
Where the matter is other than prosecution for which he is seeking a consent order, he approaches Sebi. In case of prosecution, he approaches the court though Sebi would also be involved simultaneously. The settlement may involve not just payment of some charges but further remedial directions to ensure the correction of the wrong and preventive directions to avoid further wrongs in future. The accused may also end up paying the legal costs of Sebi.
The legal foundation of the Settlement Scheme is a little shaky though. The Settlement Scheme is issued in the form of Frequently Asked Questions rather than notified regulations or rules which are part of the law and binding on all concerned. Perhaps the Settlement Scheme is experimental at this stage but surely an FAQ cannot earn the confidence of a person who is coming forward and confessing and co-operating through disclosures and waivers of many of his legal rights.
For example, the Settlement Scheme states that if the settlement process fails and the parties cannot come to a settlement, the documents forming part of such process cannot be used for continuing the proceedings. This is fair but how can a party be fully assured that this can be legally enforced when the Settlement Scheme is simply in the form of FAQs.
The relevant statutes do provide for compounding and consent but that is only the starting point. Incidentally, Sebi’s sister body, the Reserve Bank of India, conducts the compounding of violations of FEMA through formally notified rules.
Note also that the Settlement Scheme works, at least initially, through the very officer who is concerned with determination of your guilt or otherwise. Even if the assurance that documents forming part of the settlement proceedings would not be used were to be sound, the fact is that the voluntary disclosures would be known to the same officer if the process fails. Incidentally, the matter goes to an “internal committee” of Sebi for considering the settlement.
Despite all of this, the Settlement Scheme can work wonders in reducing the backlog of cases in Sebi as well as in courts. A party accused of a violation may go through procedures that may last many years, particularly if the Sebi order has to be appealed against. The costs incurred by Sebi and the parties can be huge, apart from the time and effort spent and the agony undergone. The Settlement Scheme is then certainly a better alternative.
Another aspect deserving great attention is how the consent order or compounding order is drawn up. The FAQ is particularly silent on what exact relief such orders would grant. For example, often, the same act or omission may be a violation of several different provisions of securities laws.
For example, a price manipulation by a broker would mean violation of the Stock Broker Regulations, the Sebi FUTP Regulations and so on. If the orders are not well drafted and negotiated, the relief may be partial only. There is no complete acquittal from all consequences of a particular act. Thus, the negotiations and drafting may need a lot of attention.
The consent and the compounding orders do not have as sound recognition and basis in law as, for example, arbitration orders. A matter referred once to arbitration cannot be referred back to litigation and the arbitration orders are meant to be final and non-appealable in rare cases.
However, even the arbitration process is often found not to be effective and the matter may go back to the court thus resulting in more delay than the original proceedings. One wonders therefore whether the Settlement Scheme may also be misused by parties to delay matters.
While there is a lot more to this Settlement Scheme, it has to be welcomed with open hands. The attitude of SEBI generally in working out settlements will determine the success of this scheme. The more the number of cases where it positively closes matters giving fair concessions for co-operating parties, the more would be the parties who come forward.
-Rediff
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In its midterm monetary policy review announced on 31st of October this year, the Reserve Bank of India (RBI) had announced that Resident Indians would be allowed to invest USD 50,000 abroad in place of the earlier USD 25,000 limit.
That being said, it must be noted that though a bank or a fund house is expected to take RBI permission, a resident individual’s right is in no way restricted from availing of the scheme. In other words, you as an investor can very well approach an Authorised Dealer (AD) and request remittance of the funds in an off-shore deposit or a mutual fund or a stock of your choice. And the AD will have to comply.
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