Mumbai, June 21, 2017
Sebi chairman Ajay Tyagi has tasked five senior officials with resolving some of the high-profile cases out of the 7,000 pending cases with the regulator
The Securities and Exchange Board of India (Sebi) is strengthening its enforcement department as a mountain of pending cases attracts the attention of external agencies and courts, two people aware of the matter said.
New Sebi chairman Ajay Tyagi has tasked five senior officials with resolving some of the high-profile cases out of the 7,000 cases pending before it, the people said, on condition of anonymity.
“To clear the backlog of cases which are pending enforcement for more than two years such as long term capital gain (LTCG) manipulation cases, the Pyramid Saimira case of market manipulation, and the global depository receipts (GDR) case, Sebi is strengthening its enforcement department,” one of the two people said.
The move is in line with a guidance note from Sebi’s vigilance department in February that called for quicker investigation and issuing of final orders.
“Five senior ranking Sebi officers have been given additional charge of the enforcement department to help in adjudicating processes. Sebi is also hiring junior Sebi officials to beef up the enforcement department,” said the second person.
An email sent to Sebi was not answered.
Currently, there are only around 35 adjudicating officers and three whole-time members who can pass orders under Section 11. The section gives powers to the regulator to initiate investigations and pass orders against market entities for violation
“As a priority, Sebi is first looking at resolving the cases in which external agencies such as Central Bureau of Investigation, Income Tax Department, Securities Appellate Tribunal (SAT) and Supreme Court have issued observations,” the first person said.
“For instance, a major priority is the Satyam scam, as there are observations by both the apex court and SAT in the matter,” the second person added. The Satyam scam pertained to the company inflating its earnings and assets for years.
The Supreme Court had on 11 January pulled up the markets regulator for "dragging its feet" in concluding the case against accounting firm PricewaterhouseCoopers India in the Satyam Computer Services Ltd fraud case and directed it to dispose of the matter by July. On 12 May, SAT had also directed Sebi to pass a fresh disgorgement order after it upheld Sebi’s findings that former directors of Satyam indulged in insider trading and fraudulent trade practices.
In some of its orders, SAT has also directed Sebi to pass final orders in a timely manner in the LTCG cases, where Sebi had barred 1,500 entities from capital markets. In the matter of First Financial Services, SAT ordered to set aside Sebi interim orders if final orders are not passed by November this year. First Financial was a case that pertained to entities trading in the stock and booking fraudulent tax gains.
A Sebi note issued after its 11 February board meet had said that the enforcement department was being reorganized into two units—EFD-1 and EFD-2—to streamline enforcement actions.
According to Sebi’s annual report of year 2015-16 around 3,579 adjudication cases or penalty proceedings, and 2,558 cases under Section 11 were pending at the end of March 2016.
The track record for settlement via the so-called consent mechanism has also deteriorated.
Till 31 December, Sebi disposed of 1,402 applications by passing settlement orders. During the same period, it also rejected 1,218 applications. About 326 applications were either withdrawn or became infructuous. As on 31 December, Sebi had 253 applications pending at various stages of settlement process.
“This was due to staff shortage and complicated set of facts and documents to be collected in certain cases there were delays in disposal of the applications,” said the Sebi board note.