Amendment to the Consent Circular dated 20th April 2007

ANNEXURE-‘A’

CONSENT TERMS  

GUIDELINES  

                                               I

                      GENERAL GUIDELINES

1. The settlement terms under consideration of the HPAC/Panel of WTM’s shall consist of a monetary amount called the Indicative Amount (IA), and may also consist of other directives. The final amount referred to as the Settlement Amount (SA) and directives, if any, shall be arrived at in terms of these guidelines.
2. Except for entities treated as name lenders, the IA shall not be less than `2 lakhs for first time applicants or ` 5 lakhs for others, as the case may be. A ‘first time applicant’ is a person who has never obtained a settlement order from the Board as on the date of the present consent application.
3. Based on the stage at which the proceeding(s), for which the consent application is made, is/are pending, the proceeding conversion factor (PCF) shall be applied when calculating the IA.
4. In all cases, where an existing business / activity of an entity / individual is either corporatized/converted into an LLP/Partnership or merged / taken over by a new management, the existing record of the erstwhile entity shall be deemed to be the record of the new entity for determining the Regulatory Action Factor (RAF). Thus considerations such as change of name/management/ownership shall be irrelevant when determining the liability of the said entity.
5. Where an entity desires to obtain the benefit of a lower PCF, in relation to any alleged default it may, suo motto, before the receipt of any notice to show cause, intimate SEBI of such default hereinafter referred to as ‘intimation defaults’ and co-operate with SEBI in the investigation/inspection. It may thereafter file a consent application, upon completion of the investigation/inspection. The consent application shall be deemed to have been made ‘Pre- issue of notice to show cause’ for the purpose of calculating the PCF.
6. The IA is to be calculated for each applicant. In a case where multiple applicants make a combined application for a default arising from the same cause of action, the IA will not be apportioned; rather the IA will be calculated for each applicant, as per the applicable formula except in cases related to defaults under the Takeover Regulations where the acquirer and persons acting in concert (PAC) may be considered to have joint liability.
7. While considering the consent application, the alleged default(s) detailed in the Inspection Report or the Investigation Report or the Report of the DA or the show cause notice, including any supplementary notice to show cause issued by any authority in a pending proceeding, or the facts/findings detailed in the order of the DM or the Board or the AO or the Tribunal, as applicable, shall be the basis for calculating the IA. In case, the same are contested by the applicant, the decision of HPAC/Panel of WTMs shall be final.
8. The alleged violations or defaults shall, wherever applicable, be categorised as major, minor, serious or miscellaneous by the HPAC/Panel of WTMs. In case, the same is contested by the applicant, the decision of the HPAC/Panel of WTMs shall be final.
9. An application for disclosure related defaults cannot be considered unless the applicant makes the required disclosure.
10. Notwithstanding anything contained in these guidelines, the HPAC/Panel of WTMs shall have the discretion to accept or reject a consent application, to recommend/seek an amount, lower/higher than the amounts arrived at in terms of these guidelines, in accordance with the provisions of the Act, considering the facts and circumstances of the case and the gravity of the charges.
11. In cases where the formulae for calculating the IA are inapplicable or cannot be adapted due to the nature of the default or the facts and circumstances of the case or where the defaults detailed in the Tables in these guidelines are not covered, the HPAC/Panel of WTMs may arrive at the SA,  as they  deem fit.
12. In case of an amendment(s) or repeal of the securities laws, these guidelines shall continue to apply to similar provisions under the amended or new laws, mutatis mutandis.

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                          CHAPTER II

                 INDICATIVE AMOUNT AND THE SETTLEMENT AMOUNT

Indicative amount (IA) shall be calculated as follows:

IA= A×B + Legal Costs^#

#Legal costs as incurred by SEBI shall be applicable to a consent application made at the stages mentioned in points “d” and “e” as provided in Table I.  

   ‘A’ = PCF + RAF        

               A     :  Multiplying Factor

           PCF    :  Proceeding Conversion Factor

           RAF   :  Regulatory Action Factor

             Where           

‘PCF’-   The value assigned on the basis of the stage of the proceedings, as on the date of the consent application; and 

‘RAF’–   Values for all orders and regulatory directions issued to the applicant.

‘B’  –  Benchmark Amount, is the amount which is attributable to the default/violation for which a notice to show cause is issued or may be issued by the WTM/AO/DM and/or the DA; determined separately for each category of default/violation and in case of multiple defaults, the total sum thereof, determined in terms of these guidelines;

a. In case, more than one proceeding arising from the same cause of action has been initiated against the applicant, the IA shall be increased by 15%.

Provided that where the AO has already awarded penalty to the applicant, then ‘B’ shall be equal to the amount calculated by these guidelines or the penalty awarded by the AO multiplied into the applicable PCF; whichever is higher. In cases where the WTM/DM has issued directions debarring or suspending the applicant, the RAF shall take into account the value of Y (Table III) and will be multiplied into the Benchmark amount.

b. The amount which is finally recommended by the HPAC after taking into account the IA, any mitigating/aggravating factors etc; and approved by the Panel of Whole Time Members is the

c. After payment of the SA, the consent order along with other directives, if any, shall be passed accordingly.

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CHAPTER III

PROCEEDING CONVERSION FACTOR  

The values assigned on the basis of the stage of the proceedings, as on the date of the consent application, shall be the proceeding conversion factor (PCF) as per Table I

TABLE I

Provided that where multiple proceedings arising out of the same cause of action are sought to be settled, the value of the proceeding which is at the most advanced stage, irrespective of the stage of progress of the other proceedings, shall be taken as the PCF.

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IV

VALUE FOR ALL ORDERS AND REGULATORY DIRECTIONS

The sum of all the values assigned to the orders and regulatory direction(s) issued in the past, if any, and in the present cause of action to the applicant, for which the consent application has been filed shall be ‘RAF’.

‘RAF’= X  + Y

In case multiple proceedings have been initiated for the same cause of action, the value shall be added for each order passed.

VALUE FOR ORDERS/REGULATORY DIRECTIONS ISSUED X*   

*  To also include those orders/directions which have not been stayed by the Tribunal or the Appellate Court but are the subject matter of pending proceedings, as on the date of the application.

TABLE II

VALUE FOR ORDER OR DIRECTION PASSED OR ISSUED FOR WHICH THE CONSENT APPLICATION IS FILED – Y  

TABLE III

*Where both enquiry and WTM proceedings are initiated, then the highest value of ‘Y’ is to be considered.

CHAPTER V

BENCHMARK AMOUNT FOR FUTP DEFAULTS  

The Benchmark Amount for FUTP defaults i.e. B (FUTP), except cases of serious defaults, may be computed on the basis of the table given below.

However, the HPAC/Panel of WTM’s may, in cases of serious FUTP default/violations, take the Benchmark Amount of the applicant as per the provisions of the Act (i.e.  25 crores or 3 times the profit made/loss avoided; whichever is higher) if the amounts arrived at on the basis of the calculations are found to be low and not commensurate to the seriousness of the alleged default /violation.

Notwithstanding the above, SEBI shall not consent serious fraudulent and unfair trade practices which, in its opinion, cause substantial losses to investors especially retail investors and small shareholders or have or may have market wide impact, except those defaults where the entity makes good the losses due to the investors to the satisfaction of SEBI. 

B(FUTP) =  SUM OF BASE VALUES * × APPLICABLE AMOUNT

*WHEREVER APPLICABLE, AS PER TABLE IV.

I  – BASE VALUES

TABLE IV  

*Factor ‘d’ is applicable only in cases where the actual profit/loss avoided is determinable. While calculating the period, the fractions may be ignored.

‘V’ = VALUE FOR THE HIGHEST % OF VOLUME TRADED IN ANY TRADING PERIOD DURING

THE ENTIRE PERIOD OF DEFAULT  

In case of more than one scrip, the scrip with the highest volume traded is to be considered

#Where the volume traded, during any trading period falls within this class, the HPAC/Panel of WTM’s shall consider whether the default may be consented.

‘P’ = VALUE FOR HIGHEST % OF PRICE CHANGE IN ANY TRADING PERIOD DURING THE ENTIRE PERIOD OF DEFAULT  

In case of more than one scrip, the scrip with the highest price change is to be considered

#Where the price change during any trading period falls within this class, the HPAC/Panel of WTM’s shall consider whether the default may be consented.

‘Q’ = VALUE FOR HIGHEST % OF PRICE CHANGE IN ANY TRADING PERIOD, DURING THE

PERIOD OF DEFAULT FOR F&O & LEVERAGED PRODUCTS

In case of more than one product, the contract with the highest price change is to be considered

#Where the price change during any trading period falls within this class, the HPAC/Panel of WTM’s shall consider whether the default may be consented. 

II – APPLICABLE AMOUNT

*PROFIT MADE/LOSS AVOIDED MAY BE CALCULATED AFTER TAKING INTO ACCOUNT THE FOLLOWING:

a. In cases, where the profit made and losses avoided both co-exist, the sum thereof shall be taken into consideration for arriving at the total illegal profit made by the applicant.

b. In cases of issue of fraudulent securities, fraudulent purchase of securities, including where funding is though circuitous route, etc, the profit made/loss avoided, shall be calculated after taking into account the market value of the securities on the date of purchase, allotment, issue, etc; whichever is relevant, in addition to the profit earned from subsequent sale thereof, if any.

c. In cases involving the siphoning of funds or cornering of shares/securities in an issue, the applicant’s profit made/loss avoided shall take into account the net proceeds/value of the securities or the share thereof received by the applicant.

d. In cases involving an intermediary, the profit made/loss avoided shall take into account the gross fees earned by the applicant in respect of the default, by whatever name called and any proprietary trades, if any.

e. In cases where the purpose of the FUTP is to maintain the price, the profit made/loss avoided shall take into account any means by which the applicant has benefited including the value of any pledge, margin requirements, loans against securities, hedge, options, hybrids, futures, etc, in the scrip in which the applicant was interested.

f. In cases where trades have been executed after the dissemination of false information, the profit/loss avoided shall take into consideration the difference between the purchase or sale price of the security and the value of that security as measured by the trading price of the security, a reasonable period after public dissemination of the true information.

BASE AMOUNT  

 AND  

 PARAMETERS (WHEREVER APPLICABLE) RELATING TO FUTP INCLUDING AIDING AND ABETTING FUTP/CODE OF CONDUCT RELATING TO FUTP  

TABLE V

In case more than one parameter is applicable, the highest Base Amount, as may be appropriate in the facts and circumstances of the case, may be considered. 

* TO be calculated per scrip/product manipulated. In case the scrip is part of any index maintained by BSE/NSE, the Base Amount shall be increased by 15%. 

In these guidelines the following persons shall be treated as ‘name-lender’: 

An applicant who allows his name to be used or whose name is used for opening a demat/client account by another, who operates the same as his own account. It includes an account-lender whose demat account/client account is allowed to be used or used for market transactions by anyone other than himself, for the purpose of any activity by such other, including manipulation or other fraudulent activities.

A key operator referred to in these guidelines, includes the main manipulator and any other applicant who in the opinion of the HPAC/Panel of WTM’s may be so categorised. 

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Chapter VI

BENCHMARK AMOUNT IN DISCLOSURE RELATED DEFAULTS UNDER SAST/PIT

AND OTHER DISCLOSURES-REPORTING REQUIREMENTS  

The Benchmark Amount for disclosure defaults i.e. B (D) may be computed on the basis of the table provided below. 

However the HPAC/Panel of WTM’s, may, in cases of serious disclosure violations take the Benchmark Amount of the applicant as per the provisions of the Act (i.e. ` 1 crore or ` 1 lakh per day of the alleged default; whichever is higher) if the amounts arrived at on the basis of the calculations are found to be low and not commensurate to the seriousness of the alleged default /violation. 

 B(D) = BASE VALUE*  X SUM OF BASE AMOUNTS  

*WHEREVER APPLICABLE AS PER TABLE IX.

DISCLOSURES UNDER SAST REGULATIONS –  1997/2011*

                                 *AS THE CASE MAY BE    

BASE AMOUNT  

TABLE VI  

* In case of defaults related to continual disclosures that are required to be made annually, and application is filed for a continuous cycle of disclosure defaults, the default amount shall be added for each non-disclosure. However the additional default amount for delay shall be computed only for the first non-disclosure. 

#The period of delay is to be calculated from the last day, when the disclosure ought to have been made, as required by the regulations.

In case a correct disclosure is made on time but filed in the wrong format, the Base Amount shall be reduced by 75%.

TRANSACTION SPECIFIC DISCLOSURES UNDER  13(1) AND 13(6) OF PIT REGULATIONS 1992,  

BASE AMOUNT  

TABLE VII

*In cases of disclosures not made by the connected persons as defined under the PIT Regulations and by the KMPs as defined under the ICDR Regulations, the Base Amount may be increased by 25%. 

In case the applicant is charged for non-disclosure of both SAST and PIT Regulations, the Base Amount arrived at for any one of the Regulations shall be reduced by 75%.

OTHER DISCLOSURES – REPORTING REQUIREMENTS  

B(D) = BASE VALUE  X SUM OF BASE AMOUNT

BASE AMOUNT  

TABLE VIII

BASE VALUE  

TABLE IX

All factors ‘a’ to ‘e’ in Table IX are mutually exclusive. In case of applicability of more than one factor, the lowest factor is to be considered.

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OPEN OFFER DEFAULTS INCLUDING INDIRECT ACQUISITION (CONSENTABLE CASES ONLY)

The Benchmark amount for open offer defaults ie. B (D-O) may be computed on the basis of the table provided below. 

However the HPAC/Panel of WTM’s, may, in cases of serious open offer default/violations, take the Benchmark Amount of the applicant as per the provisions of the Act (i.e. ` 25 crore or 3 times the profit made/loss avoided out of such defaults; whichever is higher) if the amounts arrived at on the basis of the calculations are found to be low and not commensurate to the seriousness of the alleged default /violation. 

B(D-O) = SUM OF BASE VALUES ×BASE AMOUNT  

BASE AMOUNT  

TABLE X

BASE VALUES

TABLE XI

Factors ‘a’ and ‘b’ are mutually exclusive.

Chapter VII

BENCHMARK AMOUNT FOR OTHER DEFAULTS BY INTERMEDIARIES , REGULATED ENTITIES,  ‘B (I/RE)’:

The Benchmark Amount for other defaults by intermediaries and regulated entities i.e. B( I/RE) may be computed on the basis of the table provided below. 

However the HPAC/Panel of WTM’s may in cases of serious violations take the Benchmark Amount of the applicant as per the provisions of the Act (i.e. ` 1 crore or ` 1 lakh per day of the alleged default; whichever is higher) if the amounts arrived at on the basis of the calculations are found to be low and not commensurate to the seriousness of the alleged default /violation. 

B(I/RE) =  SUM OF ALL BASE AMOUNTS +  25 % OF THE GROSS FEE EARNED* IN RESPECT

OF THE MAJOR DEFAULTS, WHERE DETERMINABLE

*Not applicable where the default is related to FUTP.

BASE AMOUNT *  

*Not applicable in CIS/AMC related cases where the proposed remedy may be disgorgement and winding up of the scheme. 

TABLE XII

* The HPAC/Panel of WTMs may based on the facts and circumstance of the case, gravity of the grievances and the past track record of the entity in redressing investor grievances, arrive at a lump sum  Base Amount of ` 5 lakhs or a lesser amount.

# In cases of enquiry proceedings/WTM proceedings, the Base Amount may also be computed by taking into account a suitable fraction or multiple of the gross annual income during the period of default, as may be recommended/decided by the HPAC/Panel of WTM’s, after taking into account the facts and circumstances of the case. 

CLARIFICATIONS:

1. In case of CIS related defaults, the consent amount shall be recovered from the promoter/CIMC; and from trustees/sponsors/AMC in case of defaults by AMCs/MF defaults, as may be deemed appropriate.

1. In case the CIS/AMC investment decisions have caused wrongful loss to the unit holders, the CIS/AMC shall be required to make good such loss, to the unit holders. In case, the same is not possible, the amount shall be deposited in the Investor Education & Protection Fund of SEBI.

1. Conduct related defaults are consentable only if the applicant has rectified its conduct and the investor grievances have been redressed to the satisfaction of SEBI.

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CHAPTER VII

 DIRECTIVES IN CONSENT ORDERS

In order to ensure a more effective regulatory regime; wherever necessary, directives may also be included in the consent orders, some of which are specified below:- 

1. In cases where it is possible to identify the investors who have incurred losses on account of the actions/inaction of the applicant, a direction in the nature of disgorgement;

1. In case of registered intermediaries/ major defaults, debarring certain individuals from acting as officer or director of a company that has a class of securities regulated by SEBI, for specified periods. In case of other market participants; debarring them from operating in the market for specified periods;

1. Surrender of the certificate of registration, in case of intermediaries and directing other entities not to further engage in  specified operations;

1. Cancellation of securities and reduction in share holding where the securities are issued fraudulently including bonus shares received, if any, re-imbursement of any dividends received, etc;

1. Voluntary lock-in of securities, suspension or debarment;

1. Directing the intermediaries to implement enhanced policies and procedures to prevent future securities laws violations as well as directing them to appoint/retain an independent consultant to review its policies and procedures;

1. Directing the intermediaries to ensure enhanced training and education of its employees;

1. Directions relating to internal audit and reporting requirements.

1. Any other directions that may be issued by the Board under the securities laws in the interest of the investors.

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