Political untouchability has found its way into the regulatory
system too. New guidelines notified by the Securities and Exchange
Board of India ("SEBI") for settlement of regulatory
disputes contain a long list of market abuse defaults that shall
not be settled by SEBI.
The new guidelines explicitly begin by saying that SEBI
"shall not" settle ten types of defaults. Funnily, at the
end of the list of defaults, the guidelines hasten to tuck in the
following fine print: "Notwithstanding anything contained in
this circular, based on the facts and circumstances of the case,
[SEBI] may settle any of the defaults listed above."
In the current national environment, indeed, this is a political
statement – the media has picked up the "right
noises" about SEBI having curbed its own ability to settle
disputes relating to "serious allegations". Yet, the
truth is SEBI may indeed settle any dispute of any nature.
Insider trading allegations ranks highest in the list of
anathema for settlement. Fraudulent and unfair trade practices rank
next. The approach can truly backfire and lead to unintended
consequences. First, insider trading has been elevated to the
status of the most heinous securities law misdemeanors. This very
precept is questionable. Insider trading enforcement is, by
definition, lop-sided – only those who actually transact in
securities when in possession of unpublished price-sensitive
information can be attacked. Those who refrain from selling
securities on getting possession of unpublished positive
information, and those who refrain from buying securities on
getting possession of unpublished adverse information, can never be
detected and punished.
Worse, by elevating insider trading to the most serious of
offences in the eyes of SEBI, the standard of proof that the
regulator would have to bring to bear has been heightened. It is
settled law that the more serious the nature of the violation
alleged, the greater the standard of proof necessary to bring home
the charge, even if the charge is not leveled in criminal
Second, market abuse proceedings constitute a huge majority of
all the proceedings ever initiated by SEBI. If they cannot
ordinarily be settled, it would as good as saying that nothing may
be ordinarily settled.
Of course, SEBI has reserved the right to settle such cases too,
but that would only mean that senior officers of SEBI would have to
exercise positive discretion to act outside the ordinary course,
and justify that circumstances warrant deviation from the norm.
Such norms are a product of playing to the gallery in the
current national environment, where any alleged infraction of a
regulatory requirement is seen as morally reprehensible. The same
national environment entails filing of new public interest
litigation every day by over-zealous "patriots" claiming
to be the last men standing between India's future and
devastation (some of them truly believe in and invest themselves in
Every time there is an exercise of discretion to settle
such "serious" allegations in order to prevent wasteful
expenditure in pursuing cases that SEBI cannot really win in a
court of law, SEBI would get accused of having sold itself out to
market interests. Worse, if SEBI persists with the case and loses
in the courts, its majesty would only lose sheen.
Untouchability is left to politics. Regulatory untouchability
– making some types of allegations incapable of ordinarily
being settled – would burden the notice accused of a
"serious violation" with having to undergo the pain of
proving himself innocent.
Exoneration after litigation of five to ten years can still kill
a man's psyche. Having to face proceedings, even if he were
willing to settle for less would help SEBI retain its majesty. It
may also force SEBI to refrain from initiating action in serious
cases on the ground that it is not confident of securing an
Alternately, it may make SEBI make trigger-happy and chase even
cases it cannot win, leaving the unpopular role of setting its
actions aside to the judiciary. Indian movies are replete with
stereotypical imagery of the policeman going all out to dispense
"justice" on his own, with occasional frustrations
inflicted on him by the judiciary.
The universal reality is that every type of alleged violation
should be capable of being settled – it is only the terms of
settlement that would make the decision appropriate or
inappropriate. Insecurity about the quality of governance, should
not lead to implementing a system where one need not govern at
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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