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Sebi will have to wait a while for more teeth

P Vaidyanathan Iyer & Subhomoy Bhattacharjee

The Securities and Exchange Board of India will have to wait for a few more months before it gets any additional powers.

An amendment to the Sebi Act arming it with search and seizure powers has been ruled out in the current session of Parliament.

Government officials said the department of company affairs has still not agreed to the finance ministry proposal to grant the capital market regulator search and seizure powers.

With just two days remaining for Parliament session to draw to a close, a Cabinet approval is unlikely, they said.

"The Cabinet note was prepared by the finance ministry several months ago. However, the exchange of comments between the finance and the company affairs ministry is far from over," said a senior official.

"It has got more to do with protecting ones own turf," he added. The DCA, which is equipped with such powers, has apprehensions that granting them to Sebi could result in their misuse.

Top government officials said, the "turf war" between the two ministries has delayed a discussion on the amendments to the Sebi Act by the Cabinet.

Finance Minister Yashwant Sinha had in his speech promised that legislative changes to the Act which would enhance the regulator's effectiveness would be proposed in the Budget session itself.

The proposed amendments would not only empower Sebi with search and seizure powers, but would also allow it to impose higher penalties on rogue companies and strengthen the regulator's board.

Officials said the finance ministry had provided adequate safeguards to prevent misuse of these powers in its revised proposal to the company affairs ministry.

"It has been proposed that search and seizure orders would require the permission of the Sebi board and not just the chairman. Further, the orders would have to be cleared by a magistrate in a designated court," said a finance ministry official.

Also, search and seizure could only be ordered against securities firms and not against all market intermediaries as originally envisaged, he added.

Even the Reserve Bank of India has been given search and seizure powers, officials said. There have never been instances when the apex bank misused them.

"In an environment where the market is becoming more sophisticated, vesting of such powers with the regulator itself acts as a deterrent. Fears that Sebi would misuse them are largely unfounded," said the official.

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