Beating drums to shouting aloud, Sebi flags outdated ways to recover funds

Beating drums to shouting aloud, Sebi flags outdated ways to recover funds
  • 1

New Delhi, Mar 17: Beating drums and shouting aloud may have a lot of dramatic value to attract potential bidders, but capital markets regulator Sebi feels these archaic methods for recovery of funds through sale of attached assets are outdated and there are several newer alternatives that can yield better results.
The ‘outdated’ provisions have caught the eyes of the Securities and Exchange Board of India (Sebi) during a review of recovery powers available to the regulator, which it exercises when someone fails to pay penalties or fees or defaults on regulatory orders.
In consultation with the Ministry of Finance, the securities market regulator is considering drafting separate recovery rules to recover penalties, fees, disgorgement amount and refund orders made under the Sebi Act, officials said.
Sebi is empowered to order attachment and sale of defaulters’ properties as well as bank accounts, as also to order arrest and detention of a defaulter and to appoint a receiver for management of the defaulter’s movable and immovable properties.
The watchdog is required to apply relevant provisions of the Income Tax Act, as in force from time to time, while taking into account necessary modifications to the tax law, for recovery purpose.
However, Sebi has told the government that it may be difficult to keep a tab on the amendments made to the income tax laws and there might be ambiguity as to how the modifications would be made, whether by the Act, rules or regulations, officials said.
“Furthermore, some provisions of the IT Act are outdated, such as beating of drums and public auction. Newer methods like newspaper advertisements and e-auction provide better results and are efficient,” an official said, citing a presentation made by Sebi, before the government.
Sebi had asked the government to make necessary provisions in the laws to enable it to make regulations and amendments to provide for faster and efficient methods for recovering monies.
Under the IT Act, an order of attachment needs to be proclaimed at some place on or adjacent to the property attached by beat of drum or other customary modes, and a copy of the order needs to be affixed on a conspicuous part of the property and on a notice board of the office of the Tax Recovery Officer.
In reply to Sebi’s suggestions, the Ministry of Finance told the regulator that the power to modify the Income Tax Act provisions for recoveries to be made under the Sebi Act should vest with the central government and therefore modifications need to be prescribed through rules made by the government.
Alternatively, the finance ministry also suggested that the regulator might draft separate recovery rules specific to the Sebi Act and in that event, the current provision with respect to modifications in the income tax provisions might be deleted altogether from the rules and regulations governing Sebi’s recovery powers.
Officials said, that the regulator is keen to consider the second alternative as an expert committee constituted by it is as such in process of making recommendations in the matter of comprehensive regulations for the recovery process.
Besides, the Competition Act empowers the Competition Commission of India to frame regulations for the manner in which penalty should be recovered and the fair trade watchdog has accordingly framed its own regulations for recovery of a monetary penalty imposed by it.