The capital market regulator is planning to alter the norms of its so-called consent mechanism to speed up the process and ensure that identities of alleged defaulters are disclosed only after a thorough probe and not at an early stage, said two persons familiar with the regulator’s thinking.
The consent mechanism is an out-of-the-court process through which the Securities and Exchange Board of India (Sebi) settles cases of suspected wrongdoing by listed companies. It currently allows an alleged defaulter to settle cases without admission or denial of any wrongdoing in the capital market.
Under existing rules, the regulator has to disclose the details of entities at an early stage, when the consent applications to Sebi are rejected. “It is not fair as a rule of natural justice to disclose the names of alleged entities merely because their consent applications are rejected, even while adequate investigations are pending or adjudication proceedings are not completed from the regulator’s end,” said the first person cited above.
“And, in any case, consent mechanism, by definition, is something which allows a party to do an out-of-court settlement with the regulator without admission of guilt. Until all investigations are completed or required adjudication proceedings are done to prepare an order in the matter of the alleged entity, the identity of the alleged entity should not be disclosed,” the person added, on condition of anonymity.
Sebi decided to disclose the details of consent applications that are rejected in May 2012. Between 3 January 2013 and 22 May 2015 (the latest available data), the market regulator has revealed the names of 275 such entities as they were either found not to be in consonance with its 25 May 2012 circular or Sebi’s settlement of administrative and civil proceedings regulations, 2014.
An email sent to Sebi on the proposed move on 22 February remained unanswered.
Sebi feels that an early stage or pre-mature disclosure on the basis of allegations may affect the reputation of the alleged entity, said the first person quoted above. In many cases, the person added, post investigations, the alleged entity is found to be innocent.
“Since consent mechanism goes through three stages of consideration by three different set of panels at Sebi, such instances are possible. So, ideally, Sebi should reveal the names of alleged entities only after all proceedings are completed and Sebi is in a position to either levy penalties or dispose of the matter in case the alleged party is found to be innocent and can be exonerated with just a warning,” said the first person.
Sebi is also looking at ways to reduce the time taken to settle cases through consent mechanism, he said. Currently, it takes up to several years to arrive at terms to settle a case.
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