SEBI Mulls Modifying Policy On ‘Difficult To Recover’ Cases

With an aim to optimise utilisation of its resources, capital markets watchdog Securities and Exchange Board of India is planning to modify its policy on 'difficult to recover' cases by including dues from 'untraceable individuals' and those barred by parallel proceedings in this category.

This separate 'difficult to recover' category is for cases where recovery of penalties and other dues from defaulters proves to be virtually impossible and the amount involved is not found to be worth an attempt beyond a point.

However, SEBI can initiate or continue its prosecution proceedings against the defaulters even after such a segregation and recovery procedure can be reopened in case there is any change in the prevailing parameters regarding the defaulter.

The regulator is now considering a modification to its policy on 'difficult to recover' dues to include the criteria of 'untraceable' for individuals and 'parallel proceeding barring recovery', a senior official said. A proposal in this regard is expected to be discussed by Sebi's board at its meeting later this month.

The regulator's board will also discuss 'regulatory sandbox framework'; amendments to rules governing delegation of statutory and financial powers at SEBI; and proposed changes to regulations governing Real Estate and Infrastructure Investment Trusts. SEBI has got powers to recover money from various entities by way of passing orders for refund of money to investors, disgorgement of funds to be distributed to investors, and also collect fees and penalties levied by it.

Since getting the recovery powers in 2013, SEBI has initiated recovery proceedings against a large number of defaulters, but it has experienced difficulties during the execution of these proceedings in certain cases. According to officials, difficulties mainly arise due to the defaulter being insolvent or financially unsound without having any attachable assets, or being a company whose assets or directors/ promoters are not traceable, as also individual defaulters being untraceable.

In some cases, the dues remain unrecovered even after executing all modes of recovery. Earlier, SEBI norms did not provide for declaring any unrecovered dues as 'difficult to recover' and therefore all the proceedings used to remain in force along with other recoverable cases, thus hindering optimal utilisation of resources for cases with better chances of recovery, officials said.

In 2018, SEBI began consultations with the Finance Ministry, the Reserve Bank of India and the corporate affairs ministry, but it has always made it clear that it should not be seen as "scaling down or writing off" of the dues. The regulator was told by the Department of Economic Affairs that any such policy needed to be comprehensive on the lines of the one for the Income Tax Department.

The Department of Revenue, on the other hand, had drawn SEBI’s attention to certain Comptroller and Audit General audit reports on the working of write-off procedure of the Income Tax Department so as to avoid problem areas before formulating a policy. It had also suggested a robust system of checks and balances to ensure that only those dues which are completely irrecoverable are segregated and a strong review system is put in place.

As per the suggestion, SEBI has taken cues from the procedure followed by the Income Tax Department to identify and segregate dues as 'difficult to recover'. In case of individuals, the earlier proposal focused only on a person who died leaving behind no assets and those who are alive but have no attachable assets or have become insolvent.

In case of companies, it can apply to those having gone into liquidation or insolvency proceedings or are defunct, as also entities whose directors, promoters, partners or representatives have no attachable assets. Regarding foreign companies, the new category can include those having no presence, place of business, management, representative or attachable assets in India.