[ Aditya Bashambu is a third-year law student at National Law University Odisha]
Introduction
Recently, The Securities Exchange Board of India (SEBI) issued a consultation paper on 16 July 2024 revolving around a proposal to reintroduce the concept of ‘Summary Proceedings’. The induction of same was to be made by making a significant amendment to the SEBI (Intermediaries) Regulations, 2008 (Intermediary Regulations). The prime objective behind induction of this new concept is to streamline the SEBI’s ability to act in an efficient and effective way in cases of certain violations of Securities law by Intermediaries and to ensure swift enforcement actions.
This article explores the concept of summary proceedings and enabling a deep understanding of consultation paper of SEBI. Firstly, it seeks to acquaint the readers with concept of summary proceedings. Further, it delves into the mechanism procedure of Summary proceedings to finally examine the immense need of summary proceedings in securities market. Hence, the author by examining the impact and nuances of these proceedings underscores its pivotal role that it can play to streamline the regulatory process and enforcement actions of the SEBI.
Understanding Summary Proceedings
The basic fundamental objective behind the reintroduction of concept of ‘Summary Proceedings’ is its efficiency and speed. It has been observed that traditional legal proceedings are lengthy and hence take time and ultimately results in delayed enforcements of regulations. Summary Proceedings could be a solution to prevent such delays and hence enhance the regulatory mechanism as well as enforcement actions of SEBI.
This concept was earlier present in Chapter III of the SEBI (Procedure of Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulation, 2002 but the same was abrogated by promulgation of Intermediaries Regulations in 2008. The proposed amendments aimed at reintroduction of summary proceedings shall comprise provisions identifying the cases fit for summary proceedings and the procedure to be followed in pursuance of same. The proposed provisions for summary provisions are to be inducted under the Intermediaries Regulations as provided under Annexure A in the SEBI Consultation Paper.
There are numerous sets of violations committed by intermediaries wherein the violation is obvious in nature or is accepted by the intermediaries or in other case such violations need less documents for the purpose of corroborating the said violations. One example of aforementioned violations is failure to pay fees by intermediaries to maintain their registration.
Intermediaries are obligated to pay fees in order to keep their registration in force but unfortunately in course of time it has been observed that there has been an uptick in number of instances wherein intermediaries often fail to pay the fees due to which their registration gets expired. Now this expired certificate needs to be cancelled. The long-drawn procedure of same has been mentioned under Chapter V of the Intermediaries Regulations which is quite lengthy despite the fact that it is violation which is obvious in nature.
On the same lines, various intermediaries repetitively fail to submit periodic reports within the prescribed timelines as specified by SEBI. Further, there has been an uptick in number of instances wherein hundreds of entities fail to sought their registration with the Investment Adviser Administration and Supervision Body (IAASB) as mandated by SEBI (Investment Advisers) (Amendment) Regulations, 2020 for purposes of keeping the registration in force which is pre condition to become an Investment Advisor. Now, the cancellation of the registration in the aforementioned cases entirely requires separate proceedings for each of the intermediaries which will be dealt by multiple designated authorities and requires considerable number of resources for acting on violations which are quite obvious in nature and cannot be refuted.
Cases involving intermediaries such as expulsion as a member by stock exchange(s) or clearing corporation(s), termination of depository agreements, claims of returns or performance which the Board does not permit, claims of returns or performance which are found to be false or misleading by the Board or agency as may be specified by the SEBI, Intermediary not being traceable, cases wherein the intermediary itself admitted to the violations and so on come under the ambit of the summary proceedings. The proposed Annexure A under Section 30 A (1) of Intermediaries Regulations can be referred to get detailed view.
Mechanism For Summary Proceedings
The whole mechanism for summary proceedings including the decision-making criteria, obligations that the intermediary needs to satisfy while passing of the order and post-cancellation of certificate and so on has been outlined in the aforementioned provisions.
As per the provisions, an intermediary is obligated to provide its submission in written form within twenty-one days starting from the date of the receipt. Further, the competent authority is required to pass an order within twenty-one days starting from the date of receipt of the submission made by the intermediary. The competent authority while passing an order may give an order for cancellation or suspension of the certificate of registration of the intermediary or any other order that the competent authority may seem fit. During the course of passing order, the competent authority may compel the intermediary to satisfy certain conditions. After the passing of order, the copy of order will be sent to the intermediary and will be uploaded on SEBI’s website. The same shall also be sent to clearing corporation(s) or stock exchange(s) or depository(ies) or any other body recognized by the SEBI that may be required for administration as well as supervision of intermediary as the case may be. The same shall also be uploaded on their websites. The proposed regulations for summary proceedings will be replacing the current regulations 30A of Intermediaries Regulations.
Navigating The Need For Efficiency
From the aforementioned instances of violations, it could be observed that the violations are quite obvious in nature but the procedure entailed under Chapter V of Intermediaries Regulations for handling such violations is quite long-drawn, prolonged and cumbersome in nature.
For such set of violations, a different approach should be brought in which is efficient as well as effective in nature. Summary Proceedings could be an answer which could act in hand to act take swift and timely action for governing the intermediaries and henceforth play a cardinal role in upholding the integrity, transparency and efficiency of the securities market.
Further, the current procedure as laid down under Chapter V of the Intermediaries Regulations is quite resource demanding and requires separate proceedings for each intermediary. The proposed amendments for reintroduction of summary proceedings will play a pivotal role in resource optimization by consolidating and enhancing the regulatory processes which will provide SEBI with more flexibility to attend to more complex cases that require a detailed scrutiny. Further, summary proceedings can help in timely resolution of cases including violations that are obvious in nature or are admitted. Finally, reintroduction of summary proceedings will enable a uniform approach to attend to cases involving specific violations.
The concept of Summary Procedure is also widely explicit in International Commercial Arbitration wherein it enhances the dispute resolution efficiency of Arbitral Tribunal by enabling them to arrive at an early determination of the matter on the merits without a full hearing of evidence. In whole, it enables the tribunal to dispose of unmeritorious claims and defenses at preliminary stage of arbitration proceeding. The concept of Summary procedure is even enshrined in The ICSID Rules of Procedure for Arbitration Proceedings, and the 2017 Singapore International Arbitration Centre Investment Arbitration Rules that are well-known institutional investment arbitration rules that explicitly provide for early dismissal of non-meritorious claims and defences and the ICSID Arbitration Rules. Other arbitral institutions have also inducted summary procedure in their rules, such as the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, and The International Chamber of Commerce Rules of Arbitration. Provisions for summary determination can also be found in several investment treaties, including the Central American Free Trade Agreement and the EU-Canada Comprehensive Economic Trade Agreement.
In whole, the objective behind the proposed reintroduction of summary proceedings is to enable smooth running of regulatory processes for handling of such set of violations committed by the intermediates. Ultimately, which enables the SEBI to act in an efficient and effective manner and thereby upholding the protection of investors and market integrity.
Conclusion
The proposed amendments in Intermediaries Regulations for introduction of summary proceedings is quite significant and laudable move. This step will enable the SEBI to work swiftly and in an efficient and effective manner while investigating cases involving violations committed by the intermediary that are obvious in nature or are uncontested. At the same time, it will streamline the whole regulatory process and enforcement actions of the SEBI which will ultimately lead to optimization of resources, uniform treatment of violations and maintenance of the market integrity.
This step will enable SEBI to attend to cases of complex nature that require detailed scrutiny into. The SEBI’s consultation paper proposing the reintroduction of summary proceedings marks a significant stride towards fostering a more transparent and resource efficient securities market.
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