India’s markets regulator, the Securities and Exchange Board of India (Sebi), is moving towards a significant overhaul in how it handles minor violations by market intermediaries, such as stock brokers and investment advisers. This proposed change is not only a major shift in domestic regulatory practices but also aligns with global standards for efficient market oversight, as per experts.
On 16 July, Sebi released a consultation paper proposing the inclusion of summary proceedings for certain violations of securities laws by intermediaries. This proposal aims to introduce legal changes in the Sebi (Intermediaries) Regulations to enable the regulator to act more swiftly in protecting investor interests. The new provisions are designed to expedite resolution times, potentially concluding cases within 50 days—a substantial reduction from the current timelines.
Shift towards efficiency
The summary proceeding is a legal mechanism designed for the swift resolution of cases without the need for a full trial. This approach, previously part of Sebi’s regulations before their repeal in 2008, is now being reintroduced to address obvious or admitted violations more efficiently. According to the consultation paper, summary proceedings are intended to provide uniform treatment for similar violations and streamline the enforcement process, which can currently be prolonged and cumbersome.
Under the new proposal, Sebi plans to use summary proceedings for cases such as expulsion of members by stock exchanges or clearing corporations, termination of depository agreements, and non-payment of registration fees, among others. Violators will have 21 days to respond to the allegations, with Sebi aiming to issue a final order within an additional 21 days. Notably, this process will not include personal hearings.
Senior securities lawyer Chirag M Shah views the proposed changes as a strategic move to reduce Sebi’s adjudication time, thereby freeing up resources for more critical matters.
This sentiment is echoed by advocate Deepak Dhane, founder of law firm Corporate Pleaders, who highlights the current two-step process as inefficient. The existing procedure involves issuing a showcause notice and providing an opportunity for personal hearings, which can extend over several months. Dhane believes that the new provisions would significantly streamline this process, making it faster and more efficient.
“These provisions may not be applicable to cases where the facts and/or alleged contraventions are disputed by an intermediary. The proposed summary procedure prima facie does not talk about providing inspection or hearing to the intermediary (as is mentioned in the existing procedures), which may be necessary in cases where contraventions are not admitted and are disputed by an intermediary,” he added.
Aligning with global standards
Nilesh Tribhuvann, managing partner at White & Brief – Advocates and Solicitors, supports Sebi’s proposal, noting its alignment with international regulatory practices. He suggests that similar to the Securities and Exchange Commission in the US and the UK’s Financial Conduct Authority, Sebi’s approach reflects a global trend towards more efficient regulatory enforcement. Regulatory bodies worldwide employ summary or expedited procedures to ensure compliance and protect market integrity, aiming for a balance between swift justice and thorough due process.
Tribhuvann also advocates for imposing heavier fines or penalties to enhance compliance and discourage violations. Such measures could strengthen the deterrent effect and uphold the integrity of the securities market.
Others argued that it is better to have a speedier resolution process for non-grave and settled violations.
Prakhar Dua, partner at Nishith Desai Associates, said that customary procedure under Chapter V of Intermediaries regulations for contraventions may at times unnecessarily be time-consuming, inefficient, non-uniform and cumbersome.
While the summary procedure is intended to have a swift resolution of offences, securities lawyer Aksha Petkar said it should never be without a short time-bound personal hearing to explain the circumstances to consider its case with leniency. “Introduction of Sebi’s ability to compound or pass settlement orders for intermediaries even under summary procedure may help a large number of intermediaries in voluntarily coming forward and reporting non-compliance and violations,” Petkar added.
Conclusion
Sebi’s proposed summary proceedings mark a significant shift towards a more efficient and globally-aligned regulatory framework. While the intent is to streamline enforcement and reduce resolution times, the broader implications for fairness and comprehensive adjudication remain a point of discussion among legal experts.
As Sebi moves forward, balancing efficiency with due process will be crucial in maintaining market integrity and investor confidence.
