SEBI to consider legal cost recovery from penalties

New Delhi: With many of its orders getting challenged in tribunal and courts, SEBI wants to recover legal expenses incurred in such litigations from penalties imposed by it on defaulters before crediting the same to the government's coffers.

The capital markets regulator has incurred litigation expenditure in the range of Rs 4-5 crore in each of the past three financial years, while such expenses could be even higher in the current fiscal ending this month.

Besides, SEBI may also consider charging 'processing fees' for various service requests from companies, stock exchanges and market intermediaries, as many of such services are being provided for free despite significant costs incurred by the regulator in such matters, sources said.

Fees are proposed to be levied on all service requests, barring investor complaints, in accordance with the processing time, cost and procedures involved. Besides, fees can be hiked for services like informal guidance and consent settlement.

These proposals are likely to be considered by SEBI board later this week and are based on recommendations made by a Committee on Rationalisation of Financial Resources (CRFR), which has also suggested an upward revision in certain existing fees charged by the regulator from companies and market intermediaries, a senior official said.

The recommendations have been made to beef up SEBI's financial resources to help it meet expenses for its various regulatory and investor-centric activities. The committee has submitted its report to SEBI after detailed discussions and a "thorough study" of various parameters.

With regard to legal costs, the panel has recommended remittance of net proceeds of penalties collected by it to the Consolidated Fund of India, as against current practice of gross proceeds being credited to the government account.

Pursuant to notification of SEBI (Amendment) Act, 2002, all sums realised by way of penalties need to be credited to the Consolidated Fund of India. Prior to this amendment, all sums collected as penalties were retained by SEBI.

However, the CRFR observed that many orders passed by SEBI were getting appealed against in the Securities Appellate Tribunal (SAT) and some of them even go to the Supreme Court.

As a result, SEBI was incurring significant legal expenses in its attempt to uphold the validity of its orders and the panel felt that it would be appropriate if the net proceeds of penalties, after deducting the legal expenses incurred, only be credited to the Consolidated Fund of India.

With regard to the services proposed to be charged by SEBI, the panel has suggested Rs 50,000 fee for permission to set up Wholly Owned Subsidiary Abroad, and Rs 10,000 each for requests such as change of custodian, change in registered office or name and change in managing director.


For informal guidance, SEBI has been asked to charge Rs two lakh per question seeking information under 'informal guidance scheme', while the processing fee for consent settlement has been proposed to be hiked from Rs 5,000 to Rs 10,000 per application.

It has also been suggested that certain fees be restored to the level seen before a reduction was announced in 2009.

Among others, it has been proposed to revise fees for mutual funds, bourses, brokers as also for filing of offer documents, rights issues and takeovers.

The fee hikes are being proposed against the backdrop of lower volumes in primary as well as secondary markets, resulting in reduced fee collections.

As per SEBI estimates, the regulator's operational income (fees from intermediaries) is expected to be about Rs 165 crore in the current fiscal - ending March 31 - and at about Rs 196 crore in the next financial year 2014-15.

However, a fee revision as per CRFR recommendations can boost SEBI's operational income to Rs 378 crore in 2014-15.

Before the CRFR review, SEBI's total income for the year 2014-15 is estimated at Rs 372 crore, which would include Rs 196 crore as fees from intermediaries, Rs 158 crore as income from investment and about Rs 18 crore as miscellaneous income.

With adoption of CRFR recommendations, the total estimated income can rise to Rs 554 crore, on account of an increase in fee income.

After taking into account capital and extraordinary expenditure, SEBI expects to post overall deficit of Rs 146 crore in the current fiscal.

However, a revision in fees as per CRFR recommendations can help the regulator post an overall surplus of Rs 106 crore in the next fiscal, as against a deficit of about Rs 77 crore at the current rates.

According to SEBI, various investor-centric initiatives as well as the ever increasing regulatory mandate may warrant not only identification of new resources but also aligning some existing levies to the changed market structure.

In the past, the Securities and Exchange Board of India (SEBI) had hiked the fees for various market intermediaries in 2006, while a reduction was also announced in 2009.

The downward revision in 2009 was undertaken with a view that the fees levied by statutory authorities like SEBI should be adequate enough to meet revenue expenses fully and leave a little surplus for capital expenditure.

However, the committee felt that the enhanced scope and role of market regulatory in today's time, which requires much higher financial commitment in order to remain effective and efficient, was not visualised then.

Also, the anticipation of market volumes having a secular growth trend has not materialised and decline in primary and secondary market volumes has hurt SEBI's fee collection.

The review was undertaken by the internal CRFR committee as per recommendations of SEBI's audit committee.