The Securities and Exchange Board of India in exercise of the powers conferred under section 15JB of the Securities and Exchange Board of India Act, 1992, section 23JA of the Securities Contracts (Regulation) Act, 1956 and section 19-IA of the Depositories Act, 1996 read with section 30 of the Securities and Exchange Board of India Act, 1992, section 31 of the Securities Contracts (Regulation) Act, 1956 and section 25 of the Depositories Act, 1996, makes the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) (Amendment) Regulations, 2016 in order to further amend the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014. The following amendments are mentioned below:
- In the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014-
- In regulation 5, in sub-regulation (2), in clause (b) after the proviso the following shall be inserted, namely- “Provided further that the defaults under this clause shall be considered in accordance with these regulations and also the guidelines specified in Schedule-II.”
- In Schedule- II, in Chapter I, –
(1) item (11) shall be renumbered as item (12);
(2) after item (10) and before item (12) so renumbered, the following item shall be inserted, namely- “(11) It is hereby clarified that –
- the purpose of sub-clause (b) of clause (2) of regulation 5 is not to prohibit the settlements in respect of all kinds of fraudulent and unfair trade practices.
- clause (b) of sub-regulation (2) of regulation 5 disqualifies only the defaults which are ‘serious’ and– (i) have market wide impact, or (ii) cause substantial losses to investors in securities, or (iii) affect the rights of investors in securities, especially retail investors and small shareholders.
- Thus, in order to fall in disqualification of clause (b), the default must be serious and it must fall in any or all of the categories mentioned in points (i), (ii) and (iii) above.
Notwithstanding the same, where both these criteria are attracted, the application may be considered for settlement, if the applicant has made or intends to make good the losses to the investors in terms of the first proviso to clause (b), provided he undertakes in writing that- ‘for the limited purpose of settling the administrative and civil proceedings I/We admit the charge before the Securities and Exchange Board of India.’
- While considering its ‘seriousness’, the default shall be seen in the context of its specific nature and the role played by the applicant. The charges against the applicant in the show cause notice or the investigation report or the report of the designated authority, as the case may be, may not be the only deciding factor in this regard. The weight and sufficiency of the evidence and the basis of the charge levelled against the applicant or the extent of his co-operation during the investigation/inquiry/inspection, etc., if any may also be taken into account.
- Further, the fact that the case has been referred to the Serious Frauds Investigation Office by the Central Government or the fraudulent and unfair trade practices, directly or indirectly, pose a systemic risk to the functions of any banking or micro-finance institution or a systemically important non-banking financial company or stock exchange or clearing corporation or a depository shall be relevant factors for considering the ‘seriousness’ of the default.
- Market wide impact: shall mean the defaults which have a bearing on the securities market as a whole and not just the listed security and its investors which is under investigation/inquiry/inspection, etc.
- The defaults which affect the right of investors: shall refer to the qualitative and quantitative impact on the rights of investors, including the number of complaints received, especially from retail investors and small shareholders. A qualitative impact refers to an indirect impact on the rights of investors, such as reduction in rating of a scrip as a result of the fraudulent and unfair trade practices or an increase in promoter holdings through a fraudulent private placement to related parties in default of minimum public shareholding norms, etc. A quantitative impact refers to the quantifiable losses to investors, to the extent determinable.”
Securities Exchange Board of India