Sucheta Dalal :Consent orders: Arbitrary rulings
Sucheta Dalal

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Consent orders: Arbitrary rulings  

September 13, 2011

SEBI members have been issuing orders arbitrarily

Sucheta Dalal

Chairman UK Sinha may have started out fighting an internal battle at SEBI, but his initiative of an objective analysis of the consent orders passed by the regulator was long overdue. These are quasi-judicial proceedings and we have repeatedly argued that there must be some uniformity and precedent set by the orders in terms of linking payments to the gravity of wrongdoing. Now, the SEBI chief’s 8th July letter to the Union finance secretary says, “While I have publicly defended the decisions of consent proceedings, which are legal and as per law… I do feel that there is a need to bring in uniformity and consistency.”

 As reported by Moneylife on its website, UK Sinha, “for the first time in the history of SEBI” ordered a study to analyse the orders of whole-time members (WTMs) and adjudicating officers and came up with stunning differences in their treatment of issues. Consider this. In an analysis of similar types of cases, one WTM ordered suspension of the intermediaries in 25% of the cases, another in 8% and a third in 0.5%. The letter does not name the members or specify the timeframe of the study.

 Similarly, wide disparities are evident in orders debarring individuals and market intermediaries from trading in the market or doing business. One WTM has passed debarment orders in 75% of the cases he heard, another in 50% of the cases and one in just 0.4% of cases. Doesn’t this suggest that at least one WTM was letting off plenty of wrongdoers, while another was being unduly harsh?

 SEBI’s internal study also looked at orders passed when the quantum of debarment was harsh and extended from two to five years. Here, it found that one WTM ordered debarment in 50% of the cases, another in around 33% and a third in just over 16% of the cases. This could open the doors to litigation by someone who has been debarred for two to five years and suffered severe losses only because a certain WTM handled his case. It also raises another question: What is the basis on which SEBI allocates cases to WTMs? In cases of corporates making misleading announcements, the debarment has varied from as little as six months to as much as two to five years. The variance is just as large in orders by adjudication officers. Even for an offence as simple as a failure to respond to summons, the fine varies from Rs1 lakh to Rs20 lakh.

The point made by the SEBI chairman in his letter, as well as others, is that the orders do not bother to provide sufficient detail to explain the reasons for the variation and give the impression of ‘arbitrariness and subjectivity’. It is not as though SEBI chairmen have not been aware of this. Moneylife had taken up the need for ‘speaking orders’ with two previous SEBI chairmen. But, clearly, the opacity suited them well since nobody has held financial regulators accountable for their actions because our parliamentarians have little interest

-- Sucheta Dalal