SEBI’s three weapons of punishment – freezing of bank accounts, attachment of assets and debarment from securities market are proving futile. Frozen bank accounts are much in demand by hacker community. Frozen assets have many more uses than the title free assets. Individuals and entities debarred from securities market are used as mules by stock market manipulators and Dubba-traders. Let us discuss these in detail.
Enormous powers: SEBI has enormous powers under SEBI Regulations 1992 and it can issue Ex- Parte order. First it takes action and investigates thereafter. In case of certain violations, it initiates PAN number based freeze on bank accounts, attaches movable and immovable assets and debars from securities market. It has powers to impose penalty and disgorge unlawful gains. In case of insider trading and front running, disgorgement of profit is a common feature. Among all the punitive measures, freezing of bank account is the severest one. SEBI is the only regulator, which has powers to activate PAN number-based freeze and even deactivate PAN Number.
PAN based freeze: Permanent Account Number (PAN) is financial identity of individual and corporates. It’s issued by Income Tax Department and issued by NSDL/UTI-TSL. A financial institution may know your financial details through PAN. CIBIL is also generated through PAN only. Now a days, Adhaar and PAN are linked. Therefore, PAN becomes a central number (linked with Adhaar) through which you may know almost every detail about an individual. PAN based freezing of bank account means the bank accounts opened through that PAN number will be identified and frozen. The corporate bank accounts which are linked to the PAN through its director or partner also gets frozen. But Jan-Dhan account or no frill account opened without PAN is not frozen, because the system can’t identify it. PAN based account freeze permits opening new bank account but whenever your bank will run PAN based algorithm, it will get frozen again. In case of deactivated PAN, one can’t open a fresh bank/demat account. Deactivated PAN means debarred from accessing Indian Financial System and loss of financial identity.
Frozen bank account: Frozen bank accounts are called flagged accounts. These are monitored by head office of the banks. Branch officials seldom take interest is frozen accounts. This makes it easier for hackers to route transactions through such accounts. Hackers create an extended chain of transfers to mislead investigating authorities. Since the accounts are frozen, the account holder is not responsible for any such routed transactions. It’s difficult to believe that debit freeze accounts are used for routing transfer. It’s worth mention that PAN based freezing of accounts is the domain of SEBI only. Police officials and other investigating authorities freeze specific account only. PAN based freeze is not available to them.
Frozen assets: Freezing of assets is almost ineffective. There are plenty of property buyers who are into the business of buying litigated property. There are financers who finance properties frozen by SEBI and ED. They have their own set up to get the property released or get it further litigated through bizarre means. In several cases, SEBI and other authorities have been unable in auctioning the attached property. Auction has its own difficulties. The original owner may appear with counter-bid and get the auction process hijacked.
No Entry: Debarment from securities market for a specific period is an inert penal measure. Demat cum trading accounts are easily available on rent. Even corporates lend their demat cum trading account for a fee. These are running accounts with huge volumes. No chance of getting detected. To top this all, even running brokerage houses are available for rent. Most of the broking entities have multiple memberships to combat negative surprises from SEBI. Some broking entities have relocated their business overseas where PAN activation/deactivation has no meaning. There are countries which give red carpet welcome to broking biggies and provide them with all facilities.
Pay back and relax: Disgorgement of illegally earned money is not so successful in most of the cases. The wrong doers are aware that they are into fishy business and keep on converting their proceeds into cash or crypto. Their assets are either benami or litigated. It becomes difficult for SEBI to recover/disgorge the amount. SEBI has to recover Rs. 76000 Crore dues. It’s a blind alley for SEBI.
SEBI is a forward-looking organization. It has the best minds available. It has been successfully regulating world’s number one derivative exchange. It has been praised for its investor protection mechanism. It must utilize its capabilities to devise and innovate effective and deterrent penal system.
Shandaar