Highlights of the Bill

• The Bill seeks to amend the Securities and Exchange Board of India Act, 1992, with consequential changes in the Securities Contracts Regulation Act, 1956 and the Depositories Act, 1996.

• Collective Investment Schemes (CIS) are a class of investment products regulated by SEBI. The Bill widens the definition to include all pooling of funds of Rs 100 crore or above, that are not regulated by any law.

• The Bill empowers the Chairman of SEBI to authorise search and seizure of documents relevant to an investigation.

• The Bill provides SEBI with explicit powers to order disgorgement of unfair gains. It also permits SEBI to attach bank accounts and property, and arrest and detain a person for his failure to comply with disgorgement orders or pay any monetary penalty.

• The Bill establishes special courts to try offences under the Act.

• Two provisions are being enacted with retrospective effect – (i) SEBI is being given the powers to settle non-criminal proceedings by issuing consent orders, and (ii) it may sign agreements for exchange of information with foreign financial regulators.

Key Issues and Analysis

• The expanded definition of CIS relaxes some conditions such as the need for not having operational or managerial control of funds. As a result, some schemes not conventionally understood as CISs could fall under the new definition.

• SEBI has been given the power to define what constitutes a CIS through regulations. This raises the question of excessive delegation of legislative powers.

• The power to order disgorgement of unfair gains, without approaching a court, is in contrast with the equivalent provisions of the Companies Act, 2013.

• The Bill does not explicitly provide the first right to the disgorged funds to those who suffered wrongful losses due to unfair actions.

• The Bill provides SEBI with the power to investigate, search and seize, adjudicate, attach bank accounts/property and arrest and detain a person in prison without the need to approach a court. These provisions remove earlier safeguards in the SEBI Act, which were at par with the Code of Criminal Procedure, 1973.