The Hindu Business Line : Violation of disclosure norms — `Small, sick cos must be treated leniently'

PENALTIES imposed by the Securities and Exchange Board of India for violation of disclosure requirements should be linked to the paid-up capital of a company, according to a few experts.

"Currently, the penalty amount levied by SEBI for such violations is the same for all companies, irrespective of their paid-up capital. This puts extra burden on small or sick companies, which are not cash rich," market sources said.

"Focus should be on better compliance rather than punishment," they said. The market regulator should treat companies with a small paid-up capital and entities under the Board for Industrial and Financial Reconstruction (BIFR) leniently, said market experts.

In September 2002, SEBI offered a `one-time' settlement or regularisation scheme to companies that failed to fulfil disclosure requirements under the takeover code. However, the scheme met with little success.

In 2004, SEBI raised the penalty from Rs 10,000 per annum to Rs 25,000, which amounted to Rs 1.75 lakh for defaults since 1997.

Recently, notices under the concept of consent order scheme were issued to companies that did not comply with the disclosure requirements under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Under Section 15A of the SEBI Act, if any person who is required to furnish any document and return to the Board fails to do so, then he shall be liable to a penalty of Rs 1 lakh a day or Rs 1 crore, whichever is less.

Experts said that while levying penalty, the adjudicating officer should look into Section 15J of the SEBI Act. According to the Section, the adjudicating officer should consider the amount of disproportionate gain or unfair advantage, wherever quantifiable, as a result of the default; the amount of loss caused to an investor or a group of investors; and the repetitive nature of the default.

Mr Pavan Kumar Vijay, Managing Director, Corporate Professionals, said transparency and disclosures are the touchstones of good regulation and the settlement mechanism must not allow companies to get away by paying fines from shareholder money.

He said, "The huge penalty fee is affecting the smaller companies. Besides, wilful defaulters should be separated from those who have missed the amnesty scheme due to various reasons including delay on the part of the stock exchanges."

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