Tuesday 25 October 2016

Govt Empowers SEBI to Access Call Data Records to Check Frauds

New Delhi

Giving more teeth to Sebi to clamp down on illicit money-pooling schemes and other frauds, the government has notified a new law empowering the capital market regulator to pass orders for attachment of properties, arrest of defaulters and to access call data records.

The Securities Laws Amendment Act, which was cleared by Parliament earlier this month and amends all legislations governing capital markets, would also facilitate setting up of a special Sebi court to fast-track the investigation and prosecution process, including by granting approval for search and seizure operations in suspected cases of frauds.

The Act, which has come into force through a gazette notification dated August 25, is part of the government and regulators' efforts to tighten the noose around fraudsters in the wake of several cases of illicit money-pooling activities including by ponzi operators in various parts of the country.

The new Act has as many as 57 clauses to amend various sections of the Sebi Act and two other related legislations. The bill was passed by the Lok Sabha on August 6 and in Rajya Sabha on August 12.

The notification comes more than one year after the first ordinance was promulgated in July 2013 to grant these additional powers to Sebi. The ordinance was promulgated for the second time in September last year, followed by a third ordinance in January, as a bill could not be passed in Parliament at that time to grant permanent powers to Sebi.

The third ordinance also lapsed late last month, leaving Sebi without these extra powers which were used by the regulator in nearly 1,500 cases during their validity period.

The ordinance, which had 30 clauses, was brought in against the backdrop of lakhs of small investors being duped by numerous fraudulent investment schemes across the country, like in the alleged Saradha scam in West Bengal.

With the new powers, Sebi can now act against all illegal money-pooling schemes involving Rs 100 crore or more, launch recovery proceedings, pass disgorgement orders for ill-gotten money and facilitate its return to identifiable investors, among others.

The market watchdog would have powers seek call data records and other information from any person, company, bank, authority or organisation during its probes.

However, these powers do not include authority to tap phones and other electronic data directly.

Under the amended law, there is a dilution from the direct powers granted to Sebi Chairman through as many as three ordinances in the past one year to authorise search and seizure operations and is being seen as a safeguard against any possible misuse of such powers by the regulator.

Now, Sebi would need to take permission from the special court for search and seizure operations.

Earlier, such permissions would be required from the courts across the country with jurisdiction over the particular area where such operations were required.

As there were apprehensions that such a system was time-consuming and prone to leak of information, the Ordinance brought in by the previous government granted direct powers to Sebi for any search and seizure.

"Members (of Parliament) had expressed dissatisfaction against this provision that this is too arbitrary a power. Therefore, this power had to be tapered down," Finance Minister Arun Jaitley had said in the Rajya Sabha this month, adding that the Act has been fine-tuned.

"The new architecture of this Act is that if you have a collective investment scheme (CIS) and were not covered under the original language, a wider language has been introduced. If you are having a big scheme. You will be included in it," he had said.

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