The Securities and Exchange Board of India (SEBI) has created a panel under the guidance of former Supreme Court Justice A.R. Dave, to evaluate and propose modifications to the existing consent mechanism – a system introduced in 2007 to rectify minor market violations sans confession of guilt. The structure allowed lawbreakers to resolve disputes with SEBI by paying a fee. This mechanism was well-received by stock market members as it expedited the resolution process, saving both time and legal expenses. However, more severe infractions like insider trading and fraudulent trade practices didn’t qualify for settlement through consent.
Restrictions of Current Consent Mechanism
The present system restricts eligibility for settlement under consent to those violations that haven’t had a sweeping effect on the market or caused significant damage to investors. Therefore, SEBI, grappling with a slew of unresolved cases, depends heavily on a smooth consent mechanism for relief.
Suggested Measures for Improving Consent Mechanism
To enhance the functioning of this method, the committee has recommended several amendments such as confidential settlement, imposing stiffer penalties on belated consent applications, and broadening the scope of consent mechanism to include all offenses being investigated by SEBI. The primary motivation behind these changes is to expand the range of offenses eligible for resolution via consent and help alleviate SEBI’s overburdened docket.
Public apprehensions about accountability and culpability must be addressed cost-effectively and swiftly through expedient means that facilitate an arrangement, thus sparing the aggrieved party from a cumbersome procedure. To prevent forum shopping through the settlement process, a repeat application for a previously rejected alleged default shall not be permitted. This is particularly important as it ensures that applicants take the process seriously and avoids the misuse of the board’s time through bogus applications.
New Provision of Confidentiality
Another noteworthy suggestion by the panel is the inclusion of a new provision on settlement with confidentiality. As it stands, the Settlement Regulation lacks such a provision; all settlement orders are publicly accessible and include details about the applicant. This proposal allows an applicant to voluntarily provide information about serious defaults to the regulator, aiding any subsequent investigations or audits. This new degree of confidentiality would depend on the nature of assistance rendered to the board and public disclosure would only occur if the applicant consents in writing.
The Ripple Effect of Expanding the Consent Mechanism
By extending the boundaries of the consent mechanism, SEBI can effectively decrease its administrative load. As of now, current settlement regulations disallow offenses like insider trading, fraudulent and unfair trade practices such as front-running, and failing to make an open offer during a takeover from being settled through consent. Additionally, violations such as failure to respond to investor complaints, failure to disclose vital information in offer documents and non-compliance of SEBI notices are omitted from the scope of fee settlement.
