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Ravi Ranjan Prasad

Mumbai, April 3 SEBI cases settled through issue of consent orders in matters involving manipulations and irregularities relating to the securities market are gaining in number.

The introduction of the consent order scheme in 2007 was with a view to clear the huge backlog of cases at SEBI without much delay, through an alternative form of dispute resolution.

A survey of the consent orders issued so far indicates increasing preference among the affected parties for the new mechanism for settling pending cases before SEBI.

In the first three months of 2009, around 90 cases have been settled through consent orders, while in 2008 more than 250 cases were settled.

In fact many high-profile cases involving serious violations, where the affected parties have been served with show-cause notices by SEBI, are opting for consent terms to close the matter. Even cases pending before the Supreme Court, or other designated courts for prosecution, as well as those before the Securities Appellate Tribunal, are now being settled by issue of consent orders.

The SEBI case against UBS Securities, debarring the Swiss firm from issuing participatory notes for its role in the stock market crash of 2004, was settled on consent terms. The settlement brought to an end the four-year journey of the case from Securities and Exchange Board of India to the Securities Appellate Tribunal, and then to the Supreme Court. On February 9, the Supreme Court disposed of the case between the SEBI and UBS after the parties said they had agreed to amicably settle the matter on consent terms.

Consent orders have no doubt helped ease the burden on the regulator in clearing long-pending matters. But at times cases involving manipulations in the market have been settled for as low as Rs 10,000 which legal experts say raises the question of moral hazard.

“There is a moral hazard in issuing consent orders in cases involving IPO manipulations and other market irregularities, as it creates no deterrent for offenders. Even some of the habitual offenders are having the benefit of the scheme,” said a legal expert associated with SEBI matters.

“The consent orders may be passed at any stage after probable cause of violation has been found. However, in the event of a serious and intentional violation, the process should not be completed till the fact finding process is completed by way of investigation or otherwise,” say SEBI’s guidelines.

As a result of the consent order scheme, fewer cases are now going to Securities Appellate Tribunal, which has settled a large number of appeals filed by the aggrieved parties against whom SEBI has passed orders.

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