The Hindu : SEBI regulation can be challenged

Online edition of India's National Newspaper
Monday, Feb 23, 2004

Business

Business

SEBI regulation can be challenged

`Unless rules are made by the Government, the Securities and Exchange Board of India cannot make its own regulations. So the regulation can be challenged in the court of law.'

EVEN THOUGH viewed by some as a progressive decision, the creation of a central database of market participants by the Securities and Exchange Board of India (SEBI) has raised some apprehensions among market participants regarding its implementation.

"I doubt the competency of SEBI in bringing in the SEBI (Central Database of Market Participants) Regulations, 2003,'' said Girish Dave, senior advocate and partner, Dave & Girish & Co and a noted expert on securities legislation.

According to him, all regulations under the SEBI Act have been made after rules have been made by the Government. Section 30 of the SEBI Act gives powers to the capital market regulator to make regulations. It says, the "Board may, by notification, make regulations consistent with this Act and the rules made thereunder.''

Unless rules are made by the Government, SEBI cannot make its own regulations. "So this regulation can be challenged in the court of law,'' Mr. Girish Dave feels.

"I understand they are regulating or prescribing identification numbers for brokers, merchant bankers and the employees and directors, but going to the extent of their relatives such as spouses, minor children and grandparents is too much,'' Mr. Girish Dave says.

"There should be some sort of discretion on the part of SEBI and I don't see any application of mind by SEBI in this matter,'' he feels.

While issuing the notification of SEBI (Central Database of Market Participants) Regulation 2003, the regulator stated, "In exercise of the powers conferred by Section 30 read with Sections 11, 11A, 12 and 19 of the SEBI Act 1992, the board made the regulations.''

"According to me, there is no section in the SEBI Act, especially the Sections 30, 11, 11A, 12 and 19, which are referred by SEBI, give such powers to it,'' Mr. Girish Dave argues.

Further, SEBI has gone too far by saying that a retail investor also should be registered and get the unique number.

However, the SEBI Act does not give powers to the capital market regulator to make regulations for individual investor. The biometric details such as fingerprints are required only under criminal laws and not under economic and civil laws. "The details regarding dependents such as parents and spouses have to be reviewed by the regulator and I am sure SEBI will look at it,'' said S. A. Dave, Trustee, Principal Asset Management Company Pvt. Ltd. and former Chairman of UTI.

Taking a different viewpoint, A. P. Kurian, Chairman, Association of Mutual Funds in India (AMFI), a self-regulatory organisation (SRO), however, says that the creation of a central data bank of market participants is a good initiative. "People do transact with family members also. It covers one not only as an individual but also as an unit, which consists oneself, wife and children. It is an appropriate initiative to build up a useful database.''

From a regulatory perspective, the SEBI decision to create the data bank of market participants is a progressive in nature, felt K. Madhavakumar, Chief General Manager and Country Head, sales, UTI Mutual Fund.

According to him, the market will have to adapt to the changes as and when new regulations are implemented and the creation of a central data bank of market participants will be useful for the smooth functioning of the market.

Oommen A. Ninan

in Mumbai

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