“It has been submitted that mere reliance on a criminal complaint or FIR or filing of a charge sheet should not lead to disqualification as filing of such criminal complaint or FIR or a charge sheet are the preparatory steps to trigger the criminal law. The same would also be contrary to the settled principle of criminal law that all persons are innocent until proven guilty,” Sebi said in a discussion paper on Wednesday.The move comes after the regulator submitted to the Bombay High Court that it would review its rules on ‘fit on proper person’ after brokers involved in the National Spot Exchange (NSEL) case, including Anand Rathi Commodities and Motilal Oswal, challenged a Sebi order declaring them ‘not fit and proper’ to operate.
These brokers argued that disqualification based solely on allegations was a violation of their constitutional rights.
As per the current rules, intermediaries, key management personnel and persons in charge are disqualified if there is a pending criminal complaint or FIR filed by Sebi or a pending charge of economic offenses by an enforcement agency.
The regulator has now suggested that a rules-based formula may be burdensome and inappropriate as it may lead to unintended consequences, such as placing a person in a disadvantageous position at the preliminary stage of a pending criminal complaint or indictment, which could later result in acquittal or dismissal. This could also be counterproductive to the goal of ease of doing business, the regulator said.
Any serious or aggravating factor may be taken into account on a case-by-case basis in the context of the overall conduct of the person and the potential risk to the interests of the investors, Sebi said.
The regulator said it would come out with guidelines for cases where the pending criminal proceedings are of such magnitude as to trigger disqualification.
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