The Securities Laws (Amendment) Ordinance, 2014: Re - Promulgated

The President of India re - promulgated The Securities Law Ordinance 2014. SEBI has been given the power to rely on telephone records for the purposes of investigation and evidence collection. The following post will discuss the powers of SEBI under the ordinance.

The Securities and Exchange Board of India Act, 1992 was enacted to provide for the establishment of a board to protect the interests of investors in securities and to promote, develop and regulate the securities market[1]. Under the ordinance, SEBI is empowered to call for information, conduct investigations, inquiries and audits.[2] It can call for relevant information and records from any person including any bank and any other authority, board or corporation established or constituted by or under the Central or State Acts.[3]

The Board is empowered to investigate, if it has reasonable grounds to believe that the securities transaction is detrimental to investors or the securities market and if any person has violated the provisions of the Act.[4] The Investigating authority, appointed by the Board, is empowered to do the following:

 1. Require any intermediary or person to furnish such information, produce records, books, registers or other documents before it[5]. The Authority will be permitted to keep such records for a period of six months only[6].

2.  If the Investigating Authority has reason to believe that any person or enterprise to whom a notice has been issued or might be issued, (1) has omitted or failed to provide the information; (2) would not provide the information and not produce the required documents or, (3) would destroy, mutilate, alter, falsify or secrete the information or documents, then the Chairman may authorize the Investigating Authority to do any of the following[7]:

a.       Enter and search the building, place, vessel, vehicle or aircraft where the information is expected to be kept.

b.      Break open the lock of any door, box, locker, safe almariah where the keys are not available.

c.       Search any person.

d.      Require any person who is found to be in possession or control of any books of accounts or documents which are maintained in electronic form to provide the facility to investigate such books and documents.

e.       Seize any books and documents.

f.       Place identification marks and extract copies of books and documents.

g.      Record on oath the statement of any person in possession or in control of such books and documents.

    3. The Board must make regulations in relation to search and seizure. The regulations must provide the procedure to be followed by Authorized Officers for obtaining ingress into any building, place, vessel, vehicle or aircraft. It must also provide the procedure for ensuring safe custody of any books, documents or assets seized.[8] The books and documents seized under the Act must be returned after the conclusion of the investigation.[9]

      The re - promulgated ordinance is in almost all respects identical to the earlier issued ordinance. However it does contain some significant changes. One of the most significant of them compared to the earlier ordinance is the provision providing  SEBI with the power to supersede an order issued by an adjudicating officer where it considers ” that the order is erroneous to the extent that it is not in the interest of the securities market.” [New provision Section 15-I (3)] However the power of the SEBI extends only to increasing the quantum of penalty. This presents a difficult situation, where the adjudicating officer under the act being under an implied obligation to act fairly may be overruled on the point of amount of compensation by one of the parties appearing before the Officer. This, in addition to the fact that the Adjudicating Officer is appointed from the ranks of SEBI under Section 15-I is a matter of concern in assessing the independence of the adjudicating officer. Given that the already existing remedy to approach the SAT remains unscathed the overriding powers of the SEBI represents an additional adjudication stage. One must however note that the overriding powers of the SEBI are restricted to enhancement of the penalty and does not extend to overruling questions of whether or not a violation has occurred.

The other significant change is the fact that a safeguard has been put in place vide an amendment in Section 11C (8) requiring written reasons for authorizing a search and seizure operation.

In addition to addressing the investigative powers of SEBI relating to offences under the SEBI Act the ordinance covers provisions for settlement of administrative and civil proceedings as well as establishment of special courts as amendments to the SEBI Act, 1992. The ordinance also contains amendments to the Securities Contract Regulation (Regulation) Act, 1956 and Depositories Act, 1996 which enable SEBI to exercise similar investigative powers offences prescribed the respective acts.

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[1] Preamble, Securities and Exchange Board of India Act, 1992

[2] Section 11(2)(i), Securities and Exchange Board of India Act, 1992

[3] Section 11(2)(ia), The Securities (Amendment) Second Ordinance, 2013

[4] Section 11C, Securities and Exchange Board of India Act, 1992

[5] Section 11C(3), Securities and Exchange Board of India Act, 1992

[6] Section 11C(4), Securities and Exchange Board of India Act, 1992

[7] Section 11C(8), Inserted vide The Securities Laws (Amendment) Second Ordinance, 2013

[8] Section 11C(9), Inserted vide The Securities Laws (Amendment) Second Ordinance, 2013

[9] Regulation 11C(10), Securities and Exchange Board of India, 1992 (Refer: The Securities Laws (Amendment) Second Ordinance, 2013.