Proposals could improve SEBI consent order rules

India’s securities and capital markets regulator, the Securities and Exchange Board of India (SEBI), is empowered to pursue civil/administrative and criminal action under the provisions of the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996. SEBI is also empowered to settle civil and administrative proceedings with a person who, prima facie, may have violated the securities law.

The consent order mechanism was initiated with the objective of providing appropriate sanctions and deterrence without resorting to litigation, thereby saving regulatory costs, time and effort in pursuing enforcement actions. A SEBI circular dated 20 April 2007 sets out the framework for the mechanism, which draws on a similar process by which the US Securities Exchange Commission settles a substantial number of civil and administrative orders by consent orders.

Outline of the process

Under the terms of the 2007 circular, a consent order can be passed at any stage after a probable violation has been found in a civil or administrative matter. In the event of a serious or intentional violation, a fact-finding stage has to be completed prior to completion of the process. The party applying for consent to settle its alleged violation has to file a consent form in the prescribed format, including the details of the probable violation and the consent fees which it is willing to pay.

Puja Sondhi is a partner and Ramanuj Gopalan is a senior associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.