Just heard SEBI chief a couple of days back. Apart from listing some impressive measures to develop India’s capital markets, he dropped this interesting insight which I think means a lot. He said, we usually say that the three functions of the state viz. judiciary, legislative and executive are to be independent and so on. In SEBI’s case they have powers to do all the three. This is a fundamental insight which seperates SEBI from all institutions in the country with most having executive powers. (see this excellent paper on SEBI too).
In this context, it was interesting to read this news early morning.
The Securities and Exchange Board of India (Sebi) has sent 58-year old Vinod Hingorani to jail for defaulting on the payment of a penalty. This is the first time the regulator has sent an individual to jail, after being empowered to do so in August this year. “We might have detained someone in our office once or twice. But this is the first time we are sending a person to jail. He has already been taken to prison,” said a Sebiofficial.
The Sebi order was passed in a case involving Adam Comsof India and Kolar Biotech Ltd. The case relates to advertisements about a bonus for shareholders of Kolar Biotech, as well as about a global depository receipt issue of the company, according to a Sebi order passed in 2010. Following the advertisement, a subsequent increase in share prices was used to unload stake by a group of entities linked to Raj Kumar C Basanti, the company’s primary promoter. Adam Comsof, also mentioned in Thursday’s order, was a related entity.
Though Sebi had imposed a penalty in the case, it had been unable to recover the dues for about four years. “The dues of the defaulter are more than Rs 1.64 crore and the fraudulent activities of the defaulter in various capacities in the aforesaid companies have resulted in a number of innocent investors in the securities market suffering. Therefore, I order the civil imprisonment for a maximum of six months,” said the Sebi order, signed by D V Sekhar, the regulator’s deputy general manager and recovery officer.
“Take Vinod Hingaroni to prison and keep him imprisoned for a maximum period of six months or until the amount aforesaid, together with further interest, is paid or until an order of release is received from the undersigned,” the Securities and Exchange Board of India order said. Hingorani had stated he was non-executive chairman of Adam Comsof and Kolar Biotech and that he had no role in the matter.
The order note is here.
SEBI has exercised its judiciary role big time here. A regulator sending people to jail is unheard of.
Sandeep Parekh, founder of Finsec Law Advisors, said Sebi could issue similar orders against more entities that had defaulted on dues. “It’s a very unique order. It’s rare anywhere in the world for a regulator to issue an arrest order without intervention from courts,” he said.
In August, the Securities Laws (Amendment) Act, 2014, gave Sebi additional powers, including to order the arrest of violators and seek call data records of individuals under investigation.
Anyways, the media hardly discusses what SEBI does. Even the pink media whose success is mostly based on what SEBI has done over the years. This is a new chapter in SEBI’s life..