Lok Sabha passes bill to boost Sebi’s powers

The Lok Sabha today passed the Securities Laws (Amendment) Bill, 2014 that gives the market regulator Securities and Exchange Board of India (Sebi) more powers to crack down on Ponzi schemes, but not enough teeth to conduct search and seizure operations right away.

SEBI had sought powers to carry out search and seizures without any court authorisation as seeking consent of a district magistrate of the particular area to carry out searches would necessarily lead to leakage of information that compromised secrecy.

The government instead said Prime Minister Narendra Modi will soon announce a financial scheme which will discourage people from being allured by fraudulent operators.

The Securities Laws (Amendment) Bill, 2014, has been brought in the backdrop of lakhs of small investors being duped by fraudulent investment schemes, like in the alleged Saradha scam.

According to latest estimates around 700 listed companies have also vanishing into thin air so far, leaving investors in utter disbelief.

According to a Business Standard report, around 700 listed companies have likely vanished, without a trace of these entities at their registered addresses. This is a lot more than the 87 currently identified as 'vanishing companies' in official records.

"There were 2,397 companies that defaulted in filing their balance sheets appropriately. Of these, 1,012 were listed on the BSE or the NSE, while the rest (1,385) were from regional bourses. More than half the companies listed on either BSE or NSE could be 'vanishing'. The (CMC) chairman observed the 508 listed entities that had been delisted appeared to be dubious and most (if not all) of these would turn out to be 'vanishing companies'," the report quoted minutes of the corporate affairs ministry's coordination and monitoring committee (CMC) meeting, held in July last year.

While the new law will empower Sebi conduct searches and seek information from suspected entities, both within and outside the country, it would still require approval of a designated court in Mumbai before it can start search operation. (Sebi is based in Mumbai).

Replying to the debate on the bill, finance minister Arun Jaitley said, "Where there is money there are bound to be some sharks...You would have stray cases and it deals with them when strong regulatory mechanism is required."

He said one of the ways to deal with the menace of Ponzi scheme is to expand the reach of banking system to save gullible investors from such schemes.

"The prime minister in the next few days is likely to announce that scheme (financial inclusion) and once banking expands in this country to almost cover as many people as possible, we intend reaching at least 2 more account holders in 75 million families.

"That is our object of financial inclusion and if we are able to reach such a large section of population, the need for people to be attracted such Ponzi schemes itself will go down," he said.

Jaitley further said that banking system, which "works on conventional and conservative wisdom" is still one of the most reliable form of investments and savings.

Fraudulent investment schemes involving money circulation schemes are popularly known as Ponzi.