Focus Has Been On Unregulated Entities, Reveals Study


The Securities and Exchange Board of India has largely concentrated its enforcement actions against a limited set of violations in the Indian securities market, and directed the bulk of its enforcement powers against unregulated entities, according to a study.

Researchers Devendra Damle and Bhargavi Zaveri examined about 8,000 enforcement orders, passed by SEBI over a span of 10 years, to map the manner in which the regulator has used its enforcement powers.

The key findings include:

SEBI has prioritised cases involving unfair trade practices, insider trading, takeover of companies, securities market brokers, and violations within the purview of Companies Act over others, the study showed.

The number of proceedings as a whole decreased from 2011 to 2016 and then increased rapidly.

This indicates that either the number of violations increased after 2016, or SEBI developed the capacity to dispose more enforcement actions, the researchers have said.

The study reveals that SEBI prefers monetary sanctions over non- monetary sanctions, except in cases involving violation of Companies Act, 2013.

As per the researchers, a possible explanation for this could be that under the Companies Act, SEBI enforces against companies that raise public monies without complying with the requirements to issue offer documents and prospectuses mandated under the law.

Despite the preference towards monetary sanction, the regulator has failed to provide sufficient reasoning for the quantum of penalty imposed despite directions from the Supreme Court in the Bhavesh Parbari case, the researchers observed.

SEBI has concentrated its powers against unregulated entities. Around 75% of the actions were against market participants, insiders and listed companies and not SEBI-licensed intermediaries, the study said.

Most of these actions were undertaken by an adjudicating officer and resulted in a monetary sanction.

Enforcement can result in either acquittal or conviction of the person involved. In 80% of the cases, the regulator found them guilty of all the violations they were charged with.

Across different categories, the range varied from 74% to 87% with a relatively higher rate of 84% in Takeover Code violations.

Based on the data set, the study concludes that SEBI has been an active enforcer of its regulations, with the intensity of enforcement increasing after 2017.

However, the enforcement capacity is seen mostly directed towards a limited set of violations, namely unfair trade practices, insider trading and the Takeover Code.

Further, the regulator prefers monetary sanctions over non-monetary sanctions.

A closer look exposes the impropriety in determination of penalty as the size of the violation is often immaterial and not proportionate to the size of the penalty.

Finally, the high conviction rate could signify the high enforcement capacity of the regulator.

However, this wouldn’t be complete without an analysis of the cases that went for appeal before the Securities Appellate Tribunal and other constitutional courts laying the ground for further research, Damle and Zaveri have said.


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