A move is afoot to tighten provisions in the Sebi Act of 1992 so as to enable the market regulator to impound amounts involved in a suspected securities fraud. In a report submitted on Tuesday, a high level committee headed by retired Supreme Court judge Anil Dave has recommended changes in the primary legislation to recover sums that promoters or issuers of securities siphon off to sister concerns and individuals.

“Difficulties arise when the aspects of siphoning of the amounts comes to the notice of Sebi after the passing of the final order but during the pendency of the recovery proceedings,” the committee said.

Under existing regulations, the market regulator has an “extremely potent but seldom used power” to attach any bank account or other property through its judicial branch if these assets are linked to the securities fraud.

The committee said the difficulty in exercising this power arose because of a pre-condition that “only proceeds in respect of a transaction under investigation” or property, bank accounts created out of the “proceeds actually involved in the violation of any provisions” of the Sebi Act could be attached.

“This pre-condition of proving at the interim stage itself that the monies and assets involved in the violation be traced and identified makes the use of interim attachment quite limited and self-defeating,” the committee said.

Consequently, the committee has now proposed in its 424-page report an amendment in section 11 (4) of the Sebi Act that would drop the word “proceeds” from the clause, which would therefore allow the regulator to impound or attach securities and monies “not exceeding the value of the proceeds inclusive of interest thereon” in respect of any transaction that is under investigation.

The committee noted that once a judicial pronouncement was made, the recovery officer at Sebi had no limitations and could “order the attachment and sale of all or any property for the purpose of recovering the monies due, whether or not such property relates to the violation of securities laws.”

“However, this is too little too late,” the committee said, which is why it has suggested tightening the market regulator’s powers of interim attachment.

“By the time recovery begins, the defaulting entity would have by then ensured that his assets are beyond the reach of the enforcement agencies. This prejudicially affects the actual amount of money that can be recovered,” the committee added.

Under current law, interim attachment can be made for a period not exceeding 90 days and this power can be exercised “over bank accounts or other property of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act.”