A high-powered advisory committee or panel of whole-time members may settle violations excluded from the new framework

Despite shutting the consent route on serious market offences like insider trading and front running, the Securities and Exchange Board of India (Sebi) has left a window open for settling cases based on ‘facts and circumstances’. 

The market regulator on Friday issued a new framework for settling market offences through consent mechanism. According to the new rules, it has excluded certain serious defaults like insider trading, front running, failure to make an open offer, redress investor grievances and respond to the summons.

However, Sebi has said in its circular, that its high-powered advisory committee (HPAC) or panel of whole-time members (WTMs) may settle even defaults that have been excluded from the process. This means the regulator still has the discretion to settle any case, including insider trading and front running through the consent process.

HPAC, which consists of a retired high court judge and three external experts, makes recommendations on a consent application before Sebi’s WTM panel takes a final call on it. Experts say this option should not be used as a loophole and only be exercised in exceptional cases.

“In the normal course, Sebi should not settle the offences excluded from the consent route. However, there could be circumstances where they may need to make an exception. These circumstance have to be really trying,” said Amit Tandon founder and managing director of Institutional Investor Advisory Services.

“There could be certain exceptional situations, like what happened during the Satyam case. You can’t blame the new management for the offences committed by the earlier promoter,” he explained.

Market experts say if a public sector entity is charged of say, insider trading, then the President of India cannot be tried and hence, a provision is needed to make exemptions in such cases.

“The objective there could be to bring in cases, even though excluded from the consent process, where there isn't much material violation, like cases where there are only administrative lapses,” said Siddharth Shah, head (corporate and securities practice) at law firm Nishith Desai Associates.

The consent process, introduced in 2007 and modelled on the US system, is a settlement of proceedings between Sebi and the alleged violator without admission or denial of the guilt, subject to a fine and also a voluntary ban in some cases.

The consent process was introduced with a view to cutting down on costs and time involved in the enforcement actions.

“The new consent framework is a step in the right direction, by not allowing serious cases to be settled through this route. It’s okay to keep the door open for certain exceptional circumstances, as long as they don’t misuse it,” said Shriram Subramanian, founder and managing director, InGovern Research Services, a Bangalore-based proxy advisory and corporate governance research firm. (Business Standard)