Par passes Bill to give teeth to Sebi to tackle ponzi menace

Parliament today approved the Sebi Amendment Bill to empower the market regulator to crack down on ponzi schemes, though it will not have the authority to tap telephone conversations.

Sebi, however, will have the powers to seek call data records for investigation purposes, said Finance Minister Arun Jaitley while piloting the Securities Laws (Amendment) Bill, 2014, which was passed by the Rajya Sabha. Lok Sabha had last week passed this Bill.

"The Act has been fine-tuned and new architecture with a wider language has been introduced...Sebi has no power to tap telephone...Sebi can call for information on call data records. The power to bug or intercept is not given to Sebi within the Act," he said.

The bill was brought in the backdrop of lakhs of small investors being duped by fraudulent investment schemes, like in the alleged Saradha scam.

The new law will empower Sebi investigators to conduct searches and seek information from suspected entities, both within and outside the country. However, as a safeguard, any search operation can be conducted only after approval of a designated court in Mumbai, where Sebi headquarters is based.

In the Ordinance promulgated by the previous UPA government, Sebi was vested with powers to conduct search and seizure operations without prior permission.

"This is too arbitrary a power...Therefore, this power had to be tapered down," he said.The Act will also cover the multi-level marketing schemes, which are disguised as Collective Investment Scheme (CIS) with a corpus of Rs 100 crore or more.

The Minister also said he tried to specify the jurisdiction of Sebi and the Companies Act."You cannot have an anarchic situation where two regulators deals with one space. What comes under Companies Act, should be exempted from Sebi Act...There is no over lapping of jurisdiction," Jaitley said.

Prasad said there were provisions for compensating the victims of the fraud, besides putting the disgorged money into the Investor Protection and Education Fund.

On the concerns of members over penal provisions, he said the penalty has to be proportionate with the crime as "you don't use a hammer to kill a fly".

The bill aims to empower capital market watchdog SEBI by giving powers such as to crackdown on fraudulent investment schemes, seek information from any entity related to a probe authority and to seek call data records.

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

Under the new bill, the Securities and Exchange Board of India (Sebi) would require permission from a designated court in Mumbai for carrying out search and seizure operations related to investigations.

An ordinance to empower SEBI to deal with ponzi schemes was promulgated thrice during the previous UPA regime but the same could not be passed by Parliament to make it an Act.

Once the bill becomes an Act, SEBI would have powers to call for information "not only from the people or entities associated with the securities market but also from persons who are not directly associated with the securities market".