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Give SEBI teeth, says Dhanuka panel

The Justice D R Dhanuka committee, set up by the Securities Exchange Board of India last February to examine deficiencies in the SEBI Act, the Securities Contract Regulation Act, Depositories Act and Companies Act, has recommended that SEBI be conferred powers to take to task the management and sponsors of collective investment schemes, to freezing their assets and to seek that such companies be wound up.

The recommendations also dealt with existing plantation companies, since the managers of some have disappeared while others have frittered away company assets.

The five-member committee put forward a series of recommendations related to the draft securities bill, 1998, the Depositories Act, 1996, and the draft companies bill which also deals with the consolidation of the SCRA, 1956, and the SEBI Act, 1992 into a composite legislation. SCRA and the SEBI Act could later be repealed, it suggested.

SEBI should be the sole regulatory agency for the securities market, it stated, adding that this would also cover certain provisions in the Companies Act.

The committee felt that the scope of SEBI's powers be expressly extended to include investors and others instead of just the intermediaries. It said the spot deliveries should be regulated strictly and dematerialisation of new issue of securities exceeding Rs 100 million in value should be made compulsory.

The Unit Trust of India should be regulated as a mutual fund, notwithstanding the provisions of UTI Act, 1963.

With respect to the draft companies bill, the committee recommended that SEBI administer all provisions in the Companies Act relating to the capital market and issuance or dealing in securities of listed companies. SEBI should be the sole authority for framing regulations regarding subjects entrusted to it under the new legislation, it stated.

It felt that provisions relating to prospectuses, shelf-prospectuses and red herring prospectuses require several modifications and that private placement should be regulated. Broad parameters should be laid down in the Act, the details of which should to be determined by SEBI, it stated.

Provisions made in the working draft for buy back of securities require several modifications. These are:

-- The provision for buy-back should be restricted to shares only

-- the company should not be allowed to use proceeds of prior issues for buy-back

-- the company should be allowed to reissue shares which are bought back, subject to safeguards and stipulations which may be laid down

-- Implications relating to insider trading to be considered.

The committee said that the listing period be reduced from 10 weeks to 30 days. It should not be mandatory to have the securities listed on the regional stock exchange.

It suggested that clauses 94-98 of the working draft require several amendments. SEBI may be authorised by the act to frame regulations relating to transfer of securities of listed companies. Obtaining of duplicate share certificate and issue thereof as a result of fraud of collusion be made a serious criminal offence.

If a person is found guilty of contravening the provisions of the SEBI Act, the SCRA or the Depository Act, or if penalised by the adjudicating officer under the SEBI Act, he should be disqualified from becoming the director of the company. The committee has formulated amendments so that a securities audit is made compulsory.

It said monetary penalty concept be introduced so that investors could claim compensation and damages. To enhance corporate democracy, the panel suggested a postal ballot be introduced for shareholders. Blank transfer deeds should not be permitted, it said.

The committee said that SEBI should have the power to inspect books of accounts and records of the listed companies, that rights issue with right of renunciations should be treated as public issue and that printing of share certificates be regulated and technical standards to be prescribed.

It called for verification of transfer deeds by companies on payment of nominal fees before lodgement of certificates of transfer. It suggested that a company's right to refuse transfer be limited to violation of the SEBI Act and regulations or any other law, and not on sufficient cause as currently prescribed under section 111a.

It said the concept of deemed public company should be reintroduced and that section 43a of the existing act was too useful to be deleted.

Companies making an initial public offer of securities for Rs 100 million or more should be issued only in a dematerialised form, through a depository, it said.

UNI