The Expert Committee appointed by the Supreme Court following the Hinderberg Research allegations against the Adani Group has suggested that there is a need to develop a proper enforcement policy by the Securities and Exchange Board of India (SEBI) that would optimise the utilisation of precious regulatory resources on the field.

“An effective enforcement policy would mean laying down criteria on the basis of which SEBI may choose from the wide-ranging scope of measures available to it. For instance, the criteria by which SEBI must choose whether to initiate proceedings to impose monetary penalty; as opposed to proceedings to issue remedial directions; or indeed launch criminal prosecution, should all be clear, reasoned and non-arbitrary,” the report submitted by the expert committee said. 

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There is also the element of the approach to enforcement having to be consistent with the legislation and policy stance of SEBI. SEBI must not seek to prosecute old facts with an allegation of violating the ingredients of a new law that has emerged from its own amendments. If the existing regulation does not adequately address a desired regulatory objective, and amendments are made, care should be taken to enforce the changed law prospectively,” it added. 

Settlement policy

The report said that data presented by SEBI with statistics on settlement points to the fact that the approach to settlement of proceedings is still not robust. “There is an unstated perception of reluctance to settle potential proceedings arising from causes of action identified,” it said. 

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“If SEBI desires to initiate enforcement in over 7,000 cases in a year, it must put in place a coherent policy on settlement of proceedings, whereby financial injury commensurate with the alleged violation may be inflicted on the party and yet precious resources need not be expended where a settlement is possible, achieving remediation that subserves regulatory objectives,” the report said, adding that SEBI should study the practices of the Competition Commission of India (CCI) in this regard.

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The report said adopting a firm timeline for initiation of investigations, completion of investigations, initiation of proceedings, disposal of settlement, and disposal of proceedings, is a must.

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