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Finish probes on time, CVC to Sebi

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Around 1,400 cases were pending as on March 31, 2017 under adjudication proceedings.

MUMBAI: The Central Vigilance Commission (CVC), a body that probes into governmental corruption, has directed the Securities and Exchange Board of India to complete its investigations in a time-bound manner. In the event of a delay, the capital market regulator will have to reveal the reasons for it.

CVC issued a guideline to Sebi towards 2017-end saying that the nal order should be passed within a year of passing an interim order, said a regulatory o icial. Else, Sebi board should be informed about the delay.

Following this directive, the regulator has started focusing on cases based on priority, clearing up the old ones before taking up new cases for investigation.

“Sebi now has a legacy issue in terms of its enforcement backlog. In many of these cases, punishment has been meted out by way of interim bars on trading and investigations have lasted for years. This sequencing of punishment, though technically preventive action, before the nding is sometimes necessary as action after a full investigation may be too late. However, where such interim orders are passed, it is incumbent on principles of basic justice that investigation gets over in a few weeks or at most a few months, so that the nal ruling can happen in a fair manner,” said Sandeep Parekh, founder of Finsec Law Advisors.

At the end of March 2017, 364 cases were pending for action under section 11/11B proceedings. Under these proceedings, Sebi issues prohibitive orders in the interest of investors or the securities market, either pending or on completion of investigation.

Around 1,400 cases were pending as on March 31, 2017 under adjudication proceedings, where the regulator imposes monetary penalties on o enders.

Typically, Sebi takes 5-6 years to complete an investigation and pass nal orders. As per the regulator’s annual report for FY2017, over 80 per cent of the cases mentioned above are older than one year.

“The backlog at Sebi has hurt this class of people the most, specially where interim orders have lasted years on end. It is also natural that once punished factually for so long, it would make a not guilty nding less likely in its nality,” Parekh said.

Sebi has passed several orders on entities accusing them of misusing stock exchanges to generate long-term capital gains and converting unaccounted money into legitimate money. The regulator has also passed several orders on suspected shell companies, which has led to piling up of cases.

“While successive Sebi chairmen have tried to tackle the problem of delay in passing orders, to be fair, there is an institutional problem as well. Two whole- time member (WTM) vacancies are yet to be lled by the nance ministry,” said Sumit Agrawal, ex-Sebi o icial and regulatory lawyer. “While Mr Tyagi initiated a public disclosure of hearing dates for matters with WTMs and adjudication o icers in the form of cause list on Sebi website, there is no disclosure on the status of the matter post-hearing. Appellate body SAT (Securities Appellate Tribunal) frequently nudges Sebi to expedite the passing of the orders.”

The Uday Kotak committee, in its corporate governance report, has highlighted the need for Sebi to build its capacity to strenghten its monitoring and enforcement functions. Sebi has 214 employees in its enforcement and investigation department, while the US Securities and Exchange Commission has about 1,380 employees in its enforcement department, as per their latest annual report.