Prelims Level
Mains Level
Prelims Syllabus : Mains Syllabus : Paper – II Government Policies & Interventions for Development in Various Sectors and issues arising out of their design and implementation.
  • Securities and   Exchange   Board   of India  (“SEBI”)   has   constituted   a   High   Level  Committee under the Chairmanship of Justice A. R Dave to review the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 and the Enforcement mechanism of SEBI and to suggest suitable recommendations as it considers necessary.
  • The Committee has submitted its ‘Report on Settlement Mechanism’ to SEBI on August 10, 2018.

Settlement Law:

  • In order to protect the interests of investors in securities and to promote the development of and to regulate the securities market, Settlement for securities was introduced in India in the year 2007.
  • With a view to deal with accumulated cases, SEBI felt the need to find an alternate enforcement mechanism to expedite the delivery of justice and towards that end, introduced a settlement process in 2007 that would deal with the arrear of cases and simultaneously ensure the protection of interest of investors and effective regulation and development of the securities market.

Problems:

  • SEBI also witnessed and faced challenges in its settlement mechanism while dealing with issues such as which cases or violations are to be settled and the manner of settlement as also the terms of settlement.
  • Pertinent questions such as what would constitute a serious violation and who may be permitted to apply for the settlement process has been a constant challenge.
  • Under the present settlement regulations, applications for settling specified proceedings with regard to defaults involving insider trading, serious cases of fraudulent and unfair practices including front running, failure to make open offer, defaults or manipulative practices by mutual funds, AIFs, CIS etc, failure to redress investor grievances, non-compliance of notices and summons issued by Board or the AO, cases involving refund of monies to investors, etc., shall not be settled.
  • In the absence of clear manner of quantifying gains made and losses caused, it is difficult to obtain a fair settlement in serious matters.

Recommendations:

  • It may be appropriate for the Board to write to the Central Government to request appropriate changes in the Income Tax Act, 1961 on the lines of the US IRC and explore seeking an undertaking, to be reproduced in settlement orders, in respect of non-tax reimbursements.
  • The existing regulations were drafted with the objective that certain serious violations/defaults should not be settled as the settlement regulations must not become a platform where applicants may wilfully violate the securities laws knowing that it may be settled.
  • The Committee is of the opinion that a more arduous approach ought to be adopted to ensure that only genuine applications are filed and the settlement process is not adopted as a means of forum shopping and delaying civil and administrative proceedings.
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