INSUBCONTINENT EXCLUSIVE:
New Delhi: Capital market regulator Sebi is planning to attach a 'difficult to recover' tag for individual defaulters who are found to be
'untraceable' as also for cases facing parallel proceedings by other agencies or in various courts and tribunals.
The proposal, likely to be
discussed at Sebi's board meeting next week, is aimed at better utilisation of resources towards cases with higher chances of recovery, a
senior official said.
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', the
official said.
In case of individuals, the existing policy provides for this classification for a person who has died leaving behind no
assets and those who are alive but have no attachable assets or have become insolvent.
However, the income tax department rules for
'difficult to recover' cases has two more categories -- individuals who are untraceable and those who have left India.
The official said
that Sebi did not include these categories earlier as it did not have enough data with respect to the cases involving untraceable
individuals, while the final category became redundant after promulgation of the Fugitive Economic Offenders Act.
However, its analysis of
pending recovery cases has now shown that many cases involving untraceable individual defaulters are fit for being declared 'difficult to
recover'.
In case of companies, this classification applies 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, this
category includes those having no presence, place of business, management, representative or attachable assets in India.
The Securities and
Exchange Board of India (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 had formulated this policy, after taking cues from the procedure followed by the income tax
department, following extensive consultations with the Finance Ministry, the Reserve Bank of India and the Corporate Affairs Ministry, but
it has always been made clear that it should not be seen as "scaling down or writing off" of the dues.
Out of 2,500 recovery orders passed
by Sebi so far, as many as 1,790 recovery certificates were pending (at end of November 2019).
Out of these, 136 were found fit to be
declared 'difficult to recover', though not a single case has been put in that category as yet because the final verification of the steps
are being carried out by newly appointed recovery officers prior to any such categorisation.
Out of the total 1,790 pending cases, the
maximum number of 1,308 cases are pending at a stage after attachments of bank, demat and mutual fund accounts as the funds or securities
available are not sufficient
Also, 301 of them are 'defunct' (17 per cent) and 254 have been found to be 'untraceable' (14 per cent).
Besides, the 136 cases that are fit
to be treated as 'difficult to recover', as many as 97 are 'untraceable' for reasons including of failure to serve demand notice despite
best efforts, non-availability of demat or bank account details, non-existence of right address and even PAN details being
unavailable.
Besides, Sebi is also proposing a 'difficult to recover' tag for cases facing 'parallel proceedings' before various judicial
and quasi-judicial fora such as National Company Law Tribunal, special courts, debt recovery tribunals, as also cases where stay on recovery
has been granted by high courts or the supreme court, or where parallel attachment has been done by agencies like ED, Tax Department, EPFIO
etc.
Out of the total 1,790 pending recovery cases, Sebi found that parallel proceedings were pending in 90 cases with some facing multiple
litigations.
In cases where insolvency and bankruptcy proceedings have commenced, Sebi has no scope of recovery as the Insolvency and
Bankruptcy Code prevails over the Sebi Act.
