SEBI Board refuses to clear the much-feared PUSTA Regulations, say sources – CNBC TV18
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The Securities and Exchange Board of India (SEBI) met with its Board on Wednesday, December 18. The official press release from the regulator following the meeting is yet to be released.
The regulations were proposed a year ago on May 18, 2023, and the essence of it was that, if there was suspicious activity detected in the market, the onus was on the individual or entity to prove their innocence.
Many segments of the market were quick to register their concerns and even protest, saying that this regulation went against the principles of natural justice, which states that an entity is innocent until proven guilty.
SEBI’s reasons for proposing such a regulation was recorded in its consultation paper, and had to do with the advancement in technology that made it possible for bad actors to erase every proof of their involvement in bad practices. That is, the regulator’s surveillance team may pick up suspicious activity in one or more trading accounts but the regulator’s investigations into this activity may be hampered because the evidence may have been destroyed.
As the consultation paper said, ““With the advent of technology, novel methods are being adopted by the market participants to carry out fraudulent/violative in the securities market while concealing the identities, connections and relationships between the entities engaged in such activities.
SEBI suggested that the regulation be triggered in instances of unusual trading pattern around the presence of material non-public information (MNPI) and suspicious trading activity among other things.
Current practice
SEBI also said that the proposed regulation was not in variance with the current practice of Indian law. The paper said, ““… section 68 of the Income Tax Act, 1961, provides a presumption as to the income of an assessee, if the assessee offers no explanation about the source and nature of the cash credits found in the books of the assessee or the explanation offered by the assessee, in the opinion of the Assessing Officer, is not found satisfactory. In such cases, the unexplained cash credits may be charged to the income of the assessee for that year,” stated the SEBI discussion paper.
It also pointed to similar provisions that exist in the US under the Securities Act 1933 of the United States of America.
