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Amendments to SEBI Act finalised -- SEBI to have stronger board, more investigative powers

Shaji Vikraman

NEW DELHI, July 14

THE Government has finalised the amendments to the SEBI Act, featuring strengthening of the SEBI board and linking the monetary penalties to be imposed for market offences to the amount involved in such offences.

The proposals which have been approved by the Finance Minister, Mr Yashwant Sinha, and the Law Ministry, include increasing the number of full-time members on the board to four, excluding the Chairman, and enhancing the capital markets regulator's invest igative powers.

The penalties proposed now for capital market offences is three times the amount involved -- in terms of the money lost by investors. Currently, the maximum penalty which SEBI can impose for any offences is Rs 5 lakh under the SEBI Act.

The new Bill also seeks to grant powers to SEBI to seize and keep under its possession, books of accounts of offenders for a fixed period.

The amendments to be incorporated in the Securities Laws Amendment Bill 2001, will be introduced in the monsoon session of Parliament. The proposals, have now been circulated to the Department of Company Affairs (DCA) and the SEBI for their comments.

A Cabinet note will be finalised after the comments from the DCA and SEBI are received and these changes will be incorporated in a Securities Law Amendment Bill.

After the stock scam in early March, and the subsequent hand-wringing by the SEBI Chairman and other officials about the market regulator's lack of adequate powers, the Finance Minister had given an assurance to Parliament that SEBI would be strengthened .

According to DCA officials, the total board strength of SEBI will now go up to nine from the present size of six. Of this, apart from the Chairman, SEBI has only one other full-time member. Mr J.R. Varma, who was the first full-time member on the SEBI bo ard, stepped down from the job last month, to return to IIM, Ahmedabad.

The SEBI Act says that the board will comprise two members from amongst the officials of the Ministries of the Union Government dealing with Law and Finance, one member from amongst the officials of the Reserve Bank of India and two other members to be a ppointed by the Union Government besides the Chairman.

Of these, one of the Government nominees, Mr Kumaramangalam Birla's term will expire in September.

If Parliament approves the proposed amendments during the monsoon session, the Government may be in a position to completely revamp the SEBI management by September-end. Mr Sinha has committed to do this, especially in the background of the recent manipu lations in the stock market and also the trenchant criticism of the role of the SEBI management.

SEBI has already come under fire during the last few sittings of the Joint Parliamentary Committee (JPC).

The Government is of the view that placing more full-time members on the board is crucial to the strengthening of SEBI's role. The proposal now is to assign the responsibility of functions like surveillance, corporates, legal and risk management to each of the four full-time members. They, in turn, will be assisted by the executive directors.

SEBI has also been told by the Government to finalise an HRD policy and to build up a professional cadre of its officers, instead of relying on the civil service.

The regulator will, however, not be armed with search and seizure powers.