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SEBI ‘warns’ wrongdoers — to what effect?

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Dr. M. S. Sahoo a distinguished professor at National Law University, Delhi [former Chairperson Insolvency & Bankruptcy Board of India (IBBI) and Board member of Competition Commission Of India as well as SEBI] along with Mr. Sumit Agrawal, founding partner, Regstreet Law Advisors [former SEBI Officer and visiting faculty Government Law College, Mumbai and National Institute of Securities Markets (NISM)] have authored an article in The Hindu BusinessLine today.

In the piece they argue that while SEBI issues warnings by way of quasi-judicial orders for the contravention of, or non-compliance with, some provision of law it also issues administrative warnings, deficiency letters, or other advices, post inspection / audit. It issues observation(s) / warning(s) /caution letter(s) even otherwise for contravention of specific regulations / circulars for example such as those relating to advertisements by asset management companies.

SEBI Act or the Regulations (except SEBI (Intermediaries) Regulations, 2008 or SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003)  do not provide for warnings for any contravention.

Administrative warnings were issued to Sameer Relia in 2007 for structured and synchronised deals, and to Vedanta Resources Limited in 2021 for executing a related-party transaction without approval of its audit committee. Quasi-judicial warnings were issued to Bama Securities Limited in 2004 for non-cooperation with inspecting officials and to Tata Motors and others in 2022 in the matter of backward transactions in certain shares.

However, there is no publicly available framework, statutory or otherwise, that guides what kind of contraventions warrant a warning, to enable the market to factor in the risk of warning in their business decisions. This leaves a wide room for arbitrariness, and potential abuse of power where serious offenders are being let off through warning.

They also suggest an approach that there must be an objective framework to govern the process of issue of warnings. Different contraventions / non-compliances, which may lead to a warning, should have an associated numeric score. In the interest of credibility and effectiveness of warnings as a regulatory tool, it needs to be standardized, formalised and should be dispensed in a transparent manner.

Securities law enthusiasts can read the article from the link given below. Also you could provide comments or feedback to Regstreet Law Advisors at info@regstreetlaw.com

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