SEBI mulls ‘approver’ clause to aid in probes

SEBI is likely to introduce the concept of an ‘approver’ for offenders in securities market who could help the regulator blow the lid off a major fraud or scam. An offender can expect to get a less-serious charge or a lenient sentence in exchange for vital information that could help crack the case.

A committee headed by former Supreme Court judge AR Dave has recommended that the Securities and Exchange Board of India introduce a ‘confidentiality clause’ in settlement of cases. This will culminate in a variant of the ‘approver’ concept, which is in place in the US, and also employed by Indian agencies such as the CBI, legal experts told BusinessLine . Such a scheme by SEBI could go a long way in aiding the regulator crack major scams at stock exchanges or other corporate frauds.

In legal terms, an approver could be an accomplice to a crime but confesses her guilt and provides evidence against confederates

In his report, Dave said there are currently no explicit provisions to voluntarily provide information on fraudulent and unfair trade practices, or other serious defaults that would assist the regulator in dealing with probes, inspection and audit.

“Only a person guilty of a serious violation of securities laws and willing to give assistance to the Board against his accomplices may apply under the proposed chapter (confidentially clause),” the recommendations say. However, some experts feel there may be “practical issues”. “In many instances, the applicants would be required to testify against accomplices in the scam. This could require disclosure of the approver’s name, or the case cannot go to legal trial,” said YP Singh, an IPS officer-turned-lawyer. “Also, showing leniency to approvers should be based on the severity of the offence and the extent of his involvement, and not all can be considered under proposed confidentiality clause.”

The Dave panel has recommended that confidentiality should depend on the nature of the assistance provided to SEBI. Assistance should be information such as indicating the relevant bank account details, phone numbers, or any other detail that can be independently proven.

But in cases where the applicant may be required to testify or provide details admissible in proceedings under securities laws, SEBI can ask the prospective ‘approver’ to provide such testimony. The committee has also said that individuals, and not corporate entities, can be covered under the proposed scheme.

The Dave committee has further listed specific ideas that SEBI should follow before agreeing to cover anybody under the ‘confidentiality clause’, which includes the nature of information, assistance provided by the person, and how important it could prove in cracking the case.

The Competition Commission (Lesser Penalty) Regulations, 2009, details the manner of receiving information for defaulters who are willing to co-operate against other participants of a cartel. These regulations not only provide for reduced penalty, but also have the added benefit of confidentiality to the information provider.

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