by Moneylife Foundation Study Shows Failure of SEBI and SAT to Create Credible Jurisprudence in Market-related Issues
Moneylife Foundation's Comprehensive analysis of orders passed by SEBI and SAT finds that while SAT appeals have increased, there is a perception that appeals ensure leniency and bring out long delays, inconsistencies, and lapses on SEBI's part.
Mumbai, 18 November 2021: It is about 30 years now that the Securities and Exchange Board of India (SEBI) obtained statutory authority status with immense powers to crack down on market misconduct. Investors generally observe that despite these developments, the number of orders passed by SEBI keeps rising, showing scant regard for compliance by the market players.
These are the finding from an analytical report prepared by Moneylife Foundation on orders passed by the SEBI and the Securities Appellate Tribunal (SAT) between 2019-21. The objective of this study was to understand whether the wide variance in orders between SEBI and SAT and the reversal or partial modification of the orders of SEBI at the appellate level have had a demoralising impact on investors.
In a mature market, there should be enormous disincentives for committing violations; investors depend on the prompt and effective enforcement actions taken by SEBI for redressal of their issues. The effectiveness of SEBI also depends on its ability to take actions on violations by so-called bigger corporate entities and market institutions without fear or favour.
Apparently, over time, SEBI is seen to be cracking down on such market violations. However, many of the orders of SEBI are appealed, and SAT is seen to be taking a different view and either setting aside the SEBI orders or modifying the penalties.
In the analysis, Moneylife Foundation has attempted to analyse the reasons for the same, considering 30 of the orders passed from 2019 till 2021.
The study was conducted by Sidharth Pattnaik and Shivani Pattnaik from National Law University, Odisha, who interned with Moneylife Foundation, in close consultation and under the mentorship of Advocate PR Ramesh, who practices securities law at the Bombay High Court.
Here are the main findings from the Analysis and Recommendations
From the analysis of 30 cases during the period of 2019-2021, we found that SAT had reduced the penalty imposed by the Adjudicating Officer (AO) in 17 of its orders and had completely set aside the orders passed by the AO in 9 cases either because the penalty imposed was disproportionate to the nature of the violation or the violation was technical in nature. Further, SAT has completely set aside the order passed by AO in 9 cases because there was a deficiency in the investigation conducted by the AO appointed by SEBI.
We further observed that,
- There has been an inordinate delay on the part of SEBI in taking enforcement actions in many cases, which resulted in wrongdoers getting away on technical grounds without any penalties.
- In several cases, the SAT, while upholding the findings of SEBI, has reduced the quantum of penalties.
- There is inconsistency in appreciating evidence amongst the Adjudicating Officers appointed by SEBI. This inconsistency was also observed while deciding the quantum of penalties.
- In some instances, while SEBI laudably endeavoured to take early actions, it eventually faltered in conducting follow on investigation, which led to delays and dilution of enforcement actions.
