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Settlement orders: Tyagi may tell SEBI staff togo strictly by the book

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SEBI Chairman Ajay Tyagi may ask adjudicating officers in his organisation to follow strict rules in issuing settlement orders. The regulator has often being criticised for issuing settlement orders that lack vital case details and reasoning on penalty.

“Each order of SEBI must have complete details and logic or reasoning for the [regulator’s] action. Matter where criteria is not followed can be brought to notice. SEBI will follow procedures,” said Tyagi in reply to BusinessLine’s query at a press meet this week.

Insider trading

Recent instances of SEBI settlement orders, which did not carry complete case details or reasoning and logic of SEBI’s penalty action, included high-profile insider trading and front-running matters.

SEBI’s order earlier this month against Rakesh Jhunjhunwala for alleged violation of insider trading in Geometric Ltd lacked details of case and reasoning for its measly settlement amount of ₹2.5 lakh.

SEBI settled its probe involving alleged violation of mutual fund norms against a former fund manager of ICICI Prudential by imposing a penalty of ₹6.8 lakh. The order gave no details of case or logic of penalty. Similarly, SEBI settled insider trading and takeover code violation with IDBI Bank for ₹10.74 lakh.

A case against YES Bank, for alleged violation of listing norms, was settled for ₹40.80 lakh. The alleged non-disclosure-related violation against Ajay Singh in a Spice Jet case was settled for a meagre penalty of ₹2.02 lakh, but no case details or reasoning on amount collected were given.

SEBI’s practice was similar in settlements involving CARE, CRISIL, and fund house JP Morgan. In the case of Sun Pharma, insider trading allegations against individuals involving the promoter group, were settled for ₹18 lakh.

In contrast, a SEBI settlement order was recently issued by adjudicating officer Anita Kenkare, which gave some background details of the case settled. In her order, Kenkare highlighted lapses and deficiencies of Karvy Stock Broking.

“In 2007, SEBI borrowed the concept of settlement from US SEC, and to gain prevalence of this mechanism, consent orders were less detailed. With growing acceptance, it is time for writing orders with some details like SEC,” said Sumit Agrawal, founder, RegStreet Law Advisors.

SEBI’s settlement orders should have case history, relevant law provisions, facts, circumstances of violation, details of admission made by alleged offender, if any, terms of settlement and reasoning on penalty. Case details and reasoning are continently missing in most orders, experts say.

CB Bhave, SEBI’s Chairman between 2009 and 2013, made it mandatory to follow a rulebook on settlement orders. Not all offences can be settled by SEBI and case background or details could bring transparency. Also, penalty is linked to bargaining process, which is prone to manipulation.