A detailed note is being prepared by the finance ministry on the basis of proposals made by SEBI for this purpose and it is expected to go before Cabinet for approval in the next couple of weeks, ministry sources said.
The comprehensive amendment to SEBI Act is aimed at addressing the gaps in the legislation so that judicial settlement processes do not remain torturous, according to SEBI chairman M Damodaran.
At present, the fines provided in the act to deal with manipulators of markets were not adequate. Therefore, there was a strong case for imposing large fines so that they act as a deterrent for scamsters.
"We need to deal with the perpetrators of scams in real time and if you have long torturous process you cannot get there", Damodran had told PHDCCI recently. The amendment would also intend to expedite the enforcement process as the system is getting delayed, the sources said.
The amendment is likely to provide for disgorgement, which means that money amassed through unethical business transactions are paid back with interest to those affected by the action.
Disgorgement, therefore, is a remedial civil action rather than a punitive civil action. The amendment may also have a provision for compounding offence, which means that the entities admit their mistakes before judicial settlement and pay fine.
The SEBI amendment may include "pre-bargaining" whereby entities do not admit their irregularities but pay fine.
The provision of disgorgement would arm SEBI to impose fine on those committing irregularities, which would act as deterrent to recurrence of misconduct in the capital market, Damodaran said.
The amendment would also provide access to fund for investors education. At present, all fines and penalties collected go into the consolidated fund of India, denying direct access to the money for investors' education.
Through the amendment, fines and penalties accrued to SEBI would form a corpus for the Fund for Investors Protection, Damodaran said.
