In line with its objective to bring clarity in scope and transparency in procedural framework, SEBI has revamped its existing consent order framework vide its circular no. CIR/EFD/1/2012 dated May 25, 2012 ("New Circular"). In terms of the New Circular, SEBI has, inter-alia, modified and to some extent curtailed the scope and applicability of the consent order framework. Some of the important amendments introduced, pursuant to the New Circular, are as follows:

Certain serious offences (as listed below) shall not be considered by SEBI unless the facts and circumstances so warrant:

1. Exclusion of certain defaults

  • Offences pertaining to insider trading;
  • Serious fraudulent and unfair trade practices causing substantial losses to investors;
  • Failure to make an open offer;
  • Front-running (taking advantage of sensitive and confidential information in anticipation of gain);
  • Failure to redress investor grievances;
  • Mutual fund defaults
  • Non compliance of summons issued by SEBI or orders of SEBI officials;
  • Failure to make material disclosures under ICDR and debt securities regulations.

HIGHLIGHTS

  • Scope and applicability of consent order framework curtailed
    • Serious offences like offences pertaining to insider trading, front running, failure to make an open offer, failure to redress investor grievances, serious fraudulent and unfair trade practices etc. - out of the ambit of consent order mechanism;
  • Disposal mechanism streamlined and expedited
    • Indicative time limit of 6 months for disposal of consent application
  • Constitution of Internal committee for assisting the High Powered Advisory Committee
  • Criteria for consideration of consent application restated

2. Restated criteria for consideration of consent application

Application for consent orders will not be considered:

i. If the investigation/ inspection with respect to the alleged default is pending;

ii. If an alleged default is committed within a period of

2 years from the date of any consent order, except minor defaults;

iii. If the applicant has already obtained more than 2 consent orders, then for a period of 3 years from the date of the last consent order;

iv. If more than one proceeding for the same cause of action is pending, except if it is for all proceedings;

v. If consent application is filed after 60 days: (a) from the date of this circular in case of pending proceedings as on date; and (b) from the date of service of show cause notice issued by the Designated Authority / Adjudicating Officer, Designated Member and Whole Time Member ("WTM").

3. One application for Multiple Proceedings

A single application may be considered for multiple proceedings, if arising out of the same cause of action.

4. Constitution of Internal Committee

An Internal Committee comprising of SEBI officials not associated with the case for assisting the High Powered Advisory Committee ("HPAC") shall be constituted which shall formulate the terms of the consent order for consideration of HPAC. Recommendations made by HPAC shall be placed before the panel of 2 WTM's for their approval which has the power to increase or decrease the penalty or dismiss the application.

5. Disposal Mechanism

The mechanism for consideration and disposal of consent application has been streamlined and expedited. Consent application will be disposed of preferably within 6 months from the date of registration thereof.

SEBI has, by revisiting the existing procedural framework, given a clear message that recourse to consent order mechanism is no more an easy route available to offenders committing serious violations. SEBI has also attempted to bring clarity and transparency in the consent order procedural framework which will help in removing ambiguities and result in expeditious disposal of cases without resorting to long drawn litigation process. The issuance of the New Circular appears to be a welcome move.

The full text of the Notification can be viewed at (http://www.sebi.gov.in/cms/sebi_data/attachdocs/1337946507938.pdf)

Originally published June 2012

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