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Enhancing Regulatory Enforcement Mechanisms: Tackling the Empowerment Issue in Asian Corporate Governance

This presentation explores the challenges in enforcing regulations in Asian corporate governance, with a focus on the adequacy of empowerment given to regulators. It discusses obstacles to effective enforcement, criminal prosecution delays, barriers to enforcement, and the need for improved investigation and adjudication processes. The text also highlights the Indian experience with SEBI enforcement and suggests measures to enhance enforcement mechanisms.

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Enhancing Regulatory Enforcement Mechanisms: Tackling the Empowerment Issue in Asian Corporate Governance

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  1. Fostering Enforcement Mechanisms:The Regulatory ChallengeAsian RoundtableBangkok, 13 –14 -15 September 2006 Presentation by M.K. ChouhanChairman, Mahendra & Young Knowledge Foundation Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance

  2. Empowerment issue Adequate empowerment has been given to SEBI •  SEBI Act w.e.f. 1992 • Series of amendments have come since then : •  1995 – Monetary Penalties were included • 2000–Enforcement Powers / Investigation / Search / Seizures (Section 11 –C) • 2004 – Demutualization of stock exchanges  Thus , SEBI is reasonably empowered

  3. Obstacles & Barriers to effective enforcement Criminal prosecution : • Regular courts very slow, • Cases used to take very very long time. • Normal courts busy with routine work • disposal rate very low 12 – 13 cases in a year • It takes 10 –12 years, therefore violator is not worried.   Eg Out of 1000 cases filed most are at stage of summons. Enforcement Obstacles : Power vested with other law enforcement agency like CBI or Police are not with SEBI.

  4. Obstacles & Barriers to effective enforcement • If one particular firm is barred from dealing in Securities, People behind it may operate through alternate firm. Detection of these related firms is difficult. Separate powers for Enquiry, adjudication & administration – delay decisions 1. Enquiry Officer – Authority for Suspension of Certification 2. Member of SEBI – Authority to for Administration / Direction i.e. Debarring from operating in securities Market. 3. Adjudication Officer–Authority for Monetary Penalty

  5. Indian Experience • Two Designated Courts have been set up for SEBI prosecution cases at Mumbai & New Delhi • With Oct 2002 SEBI amendment – SEBI can impose up to Rs 25 crore (US$ 5.5 mn) penalty e.g Recently Holicim a Swiss co. having JV with Indian Cement CO. has been imposed 25 crore (US$ 5.5 mn) penalty   A Broker - Ketan Parekh has been debarred for 14 years from dealing in Securities Market

  6. Indian Experience • After 2002 amendment, tiers have been reduced to only three : High courts are avoided. The cases are settled in the following manner SEBI to Securities Appellate Tribunal (SAT), to Supreme Court • Issues of fact are settled in SAT • Law related issues are settled in Supreme Court.

  7. What should be done ? Enforcement at various levels : • Self Regulated Organizations (SRO’s) should be encouraged and empowered • SEBI registered – Broker SROs – Mutual Funds SROs

  8. What needs be done ? • Revenue Recovery Act being suggested • Compensating the victims is not being done, only action against offender is being taken • There is no specific provision in statute on disgorgement area. Thus such provisions should be brought. • No power for confiscation of proceeds of Securities, during investigation. such powers should be brought Eg. If fraudulent allotment is made by a promoter, it can be debarred for some time, but chances are that these securities might again come to the Market.

  9. What needs be done ?… • Multiple Enforcement Action i.e Enquiry & adjudication, administrative powers, All these three powers should be under one single authority • Investor awareness should be improved so that compliance can be quickened. • Justice Karia Committee has given it’s report & recommendations can be viewed on www.sebi.gov.in • Effective Speedy enforcement Justice delayed is justice denied

  10. THANK YOU

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