By Ananya Mishra
Edited By Nandita Singh, Senior Editor, The Indian Economist
Governments in India or any country for that matter aim at establishing a welfare state. One of the fundamental steps for achieving it is securing the financial interests of its citizens. With an expanding market and cases of frauds in stock market, the Government of India established the Security and Exchange Boards of India, SEB, in 1988, as a no statutory body through a resolution of the government. It was not an innovation, as similar institutions can be found world over like the SEC in the US. Statutory powers were strengthened through an ordinance promulgated in 1992, making it a quasi-judicial body. The main idea was to protect the interest of investors and regulate market securities. It has time and again been strengthened by more powers given to it by the Government, like recognition of stock exchange and settling disputes relating to regulation of transaction under spot delivery.
Many of the regulations passed for reforms in the finance sector have been regulations of SEBI like Mobile Trading, Raising Retail Investors Investment Limit among others. It has further been making policies for augmenting investment in MSMEs. The body initially lacked power, but in recent times has been devolved powers. The most recent being the establishment of a SEBI court, which allows the body to conduct trials regarding stock frauds or frauds stemming from deviation from set procedures.
The recent ban on the country’s largest developer, DLF, on grounds of failure to submit information of its subsidiaries and pending legal cases in 2007 during its initial public offer, can be seen as a positive as well as a negative step that can be analysed later. The company is also barred from listing a REIT for 36 months, which could further aggravate the issue for the debt ridden company. This comes after the SC earlier this year upheld a fine slapped by the regulator of Rs 6.3 Billion.
Another corporate honcho who was convicted and arrested was Subroto Roy, the Chairman of SAHARA, who is still in custody with a bail set at Rs 100 Billion. Conviction of former Tata Finance MD Dillip Phendse and his barring from the stock market for two years is also another such case.
The recent fine on the Glaxo Group, a promoter of Glaxo SmithKline, the UK pharmaceuticals giant, for failure in making timely disclosures of its aggregate shareholding is also notable. Although the fine is a small amount, the signal it sends to other countries worldwide is important. That too in a sector which has been in the eye of the storm regarding the latest IPR issue and the “Section 3d” of our act which focuses on “enhanced efficacy,” but does not include “increased bioavailability” as means for making contracst of pharmaceutical companies environmentally sustainable.
The whole evolution of SEBI can be assessed either ways. The regulator has emerged as one of bulwarks in the finance sector. It makes the listed companies accountable, and is required to function as it has been, so that financial institutions observe canons of propriety, and any event of breach of trust can be reprimanded.
However, at the same time, the regulator has had to give some hard verdicts, which have been detrimental to companies, domestic and foreign, and that too with delays, which has apprehended foreign companies looking to launch subsidiaries in India, and thus stalled foreign inflow to a certain extent. This in turn may depreciate the Ease of Doing Business for India which has been a point of concern lately.
That said, the companies should understand that while India is looking for investments, it will not compromise on its law and regulations. Even if the regulators deter investors world over, India remains to be one of the most sought after destinations for foreign investment.
Another striking quality of the regulator’s work has been the slow coach approach. A fast track working of the court is needed considering the dynamic nature of the market it regulates. Any verdict of the court will have implications on not only the company, but the investors, as well as the public, and thus needs expeditious working.
While SEBI has gradually evolved with enhanced powers and more control over the market, the devolution has been in the backdrop of stock frauds, like the FTIL, Satyam or the Harshad Mehta scams. The problem has been that the devolution of powers, though gradual, has not been proactive. but reactionary. A new scam or stock fraud has expanded the jurisdiction of the regulator. However the body, having been active for a while now, will have to tread carefully in the future as the country moves into an era of heavy duty foreign investments and listings of foreign companies.
Ananya Mishra is currently pursuing his BSc in Physical Sciences. He is a KVPY scholar and is into active research in data analysis. Apart from these, he is also an active student member of Institute of Actuaries India. His interest spans financial mathematics, investments, current politics and international affairs. Other hobbies include chess and computing.