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Cabinet nod to amend SEBI Act, repeal UTI Act

By Our Special Correspondent

NEW DELHI OCT. 28. The Union Cabinet today approved the promulgation of two ordinances — one to amend the Securities and Exchange Board of India (SEBI) Act to give it enhanced powers and the second to repeal the UTI Act, 1963 to give effect to the earlier decision to split the company.

The decision to give more powers to SEBI flows from the `limitations' in the stock market regulator's ability to check malpractice and market manipulation that emerged recently. Consequently, apart from expanding the SEBI board to nine from the present six (including the Chairman), the regulator will now have powers of `search and seizure' of company premises and records but only after a magistrate permits it. Second, the penalties which can be imposed have been considerably hiked, from Rs. 5 lakhs to Rs. 25 crores or three times the undue profit made, whichever is higher. All the money realised by SEBI by way of penalties or fines would go into the Consolidated Fund of India.

To enhance the enforcement powers of SEBI, the ordinance clarifies and defines offences such as insider trading, fraudulent and manipulative trade practices and market manipulation. The SEBI would also have the powers to call for records from banks and other authorities to facilitate investigations.

The ordinance also provides that the Securities Appellate Tribunal (SAT) would be made a three-member body with the presiding officer to be a serving or retired Supreme Court or High Court judge. The appointment would be made in consultation with the Supreme Court Chief Justice. The ordinance also empowers SAT and courts to compound offences. In addition, appeals against SAT orders would lie before the Supreme Court on points of law.

The ordinance dealing with UTI gives effect to the earlier decision of August this year to split the company into two. While UNIT-1 will have the beleaguered US-64, all assured return schemes and the Special Unit Scheme 1999 under it, the rest of the net asset value (NAV) based schemes will go to UNIT-II which will be eventually privatised. The UNIT-II company will be sponsored by some public sector banks and financial institutions with a share capital of Rs. 10 crores and will be a professionally-managed company which will be fully SEBI-compliant.

All existing employees of UTI will be transferred to the new company and will become its employees on existing terms and conditions.

As for UNIT-I, all redemptions of US-64 at committed prices would continue beyond May 2003 while the interest and dividend on assured return schemes would be reset at lower levels. Some schemes will also be foreclosed, subject to SEBI regulations. UNIT-I will not launch any new schemes.

The Government intends to bring appropriate legislation before Parliament during the winter session to give legislative backing to the ordinances.

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