Sebi seeks more powers to inspect books, financial records of listed firms, thwart frauds

Sebi has sought broadening of its power to all cases where the regulator suspects a violation of any securities law; and heavy penalty for altering, destroying, mutilating, concealing or falsifying records and documents.

Market regulator Securities and Exchange Board of India (Sebi)  has sought greater powers to inspect books of accounts of listed companies for contravention of any securities law and also to take direct action against the fraudsters and thwart financial frauds, media reported. Heavy penalty for altering, destroying, mutilating, concealing or falsifying records and documents or other tangible objects with an intent to obstruct, impede or influence a legal investigation has also been proposed by Sebi, the reports said.

Notably, Sebi can, at present, conduct such inspections in case of violations relating to insider trading and fraudulent or unfair trade practices, the reports said.

According to the reports, Sebi has now asked the government that its power to undertake inspection of books at listed companies should be for contravention of any securities laws without limiting it to violations relating to one or two regulations.

Under the Sebi Act, the market regulator is empowered to conduct inspection of any book, register or other documents and records of any listed company if it has reasonable grounds to believe that the company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities markets.

Sebi has sought broadening of these powers to all cases where the regulator suspects a violation of any securities law.

It has has also proposed that any disgorgement order for recovery of illegal gains should be applicable to all joint actors, without making it conditional on the gains or averted losses of the violators.

The regulator has moved another amendment to the Sebi Act, seeking to replace the term 'material or non-public information' with 'unpublished price sensitive information' to bring in greater consistency of legal phrases used for insider trading laws.

The penalty for insider trading violations which is currently imposed on those dealing in securities "on the basis" of material or non-public information; the regulator has sought that it be changed to "while in possession".

Sebi is of the view that there is a need to create an obligation on an individual not to alter, destroy, mutilate, conceal or falsify the records to hamper investigation and therefore all such acts should be treated as 'fraudulent' and actionable under the securities laws, the reports said.

Such acts lead to a minimum penalty of Rs 5 lakh, which may extend to Rs 10 crore or three times the amount of profit made from such an act, whichever is higher.

Another of Sebi’s proposed amendments seeks to bar any person from employing or assisting in employing any device, scheme or artifice to manipulate books of accounts or financial statements of a listed company to directly or indirectly manipulate the share price, or to hide the diversion, siphon off the funds or assets or earnings of a listed firm or a proposed-to-be-listed company.

The regulator has sought power to take direct action against perpetrators of financial frauds as such acts have adverse impact on not only the shareholders of the company but also impact the confidence of investors in the securities markets.

Notably, the primary responsibility of monitoring or supervision of books of accounts of companies is with the Ministry of Corporate Affairs under the Companies Act. Sebi has suggested that it also be given powers to take direct action in case of fraud committed by manipulating books of accounts or of financial statements at listed companies. Typically, such acts are aimed at manipulating the share price, hiding fund diversions, misutilising the public issue proceeds or siphoning off the proceeds, assets or earnings of a listed company, the report said.

The proposed amendments are as per the recommendation of the Fair Market Conduct Committee, constituted by the regulator.

The final decision on the proposed changes would be taken only after taking into account the views of the Finance Ministry and also of the Corporate Affairs Ministry in a few cases, reports said. Notably, while the Finance Ministry is in agreement on some proposals, there are differences in case of a few others, media reports said.

Source: reports/PTI

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