Sebi appears to be dead serious about putting speedily into place a litigation-free alternative of achieving justice and discipline. A few weeks back it introduced a scheme whereby persons accused of securities laws can co-operate with Sebi and agree to a punishment where both, Sebi and the accused, win.

The scheme, unfortunately, was issued in the form of an FAQ which appeared to have a shaky legal basis and further, while the broad scheme and intent were quite clear, there were some areas that needed clarity. Within weeks thereafter, while also recasting the FAQ, Sebi has issued a circular  --  a better way though not the ideal or perfect one to set into place a law  --  formalising the scheme to settle such disputes through consent orders and compounding. It is worth highlighting what has mainly changed from the last discussion we had in this newspaper analysing the FAQ.

To recap, Sebi, like any other law enforcing body, faces the problem of time and effort consuming procedures to levy punishment on a person accused of violating securities laws. A party that has violated some laws too faces the prospect of spending a lot of time, effort and money on attending to such legal procedures and notices, not to talk of the prospect of punishment.

Strange as it may sound, even a person who has not committed a violation would also benefit from a short-cut procedure where he agrees to some punishment! A scheme where Sebi and the accused come together and make an agreement may be better for yet another important reason. Sebi may be able to order preventive, remedial or even other innovative courses of action that it may not be able to implement legally otherwise.

Thus the basis of a Settlement Scheme, as we called it earlier, is that both parties avoid a prolonged fight where none of them is sure of the outcome and instead work out a solution where both gain. The circular now recasts the Settlement Scheme and let us now see what are the major changes proposed.

Firstly, the Settlement Scheme is issued in the form of a circular. This circular, in fact, goes further and calls the provisions "guidelines". Circulars are certainly a more formal means of expressing a policy and certainly better than an FAQ.

However, they would be far below in the ladder as compared to formally notified rules or regulations which have the sanction of Sebi and other Acts. One hopes that Sebi upgrades these guidelines to regulations or rules soon and perhaps the intention is to gain some more experience in this field.

While a circular is better than an FAQ, there are some clauses in the Settlement Scheme that raise concerns on the finality of the orders so passed. At one place, the Scheme says, "Consent orders cannot be construed as the waiver of statutory powers by the Board.

The Board always has the right to proceed with appropriate action if it cannot achieve its objectives through a consent order." One hopes that what is meant by this is only a clarification that Sebi is not abdicating its general powers of enforcement and it does not mean that Sebi will set aside a consent order if it feels at a later point of time that it was inadequate.

Then, in clause 21, the Scheme says that the consent order will be binding on the party. In fact, if the consent order is not complied with by the party, there is an additional punishment -- apart from the punishment for the original violation.

However, Sebi could have also provided that the guidelines are binding on Sebi as well. Even the guidelines relating informal guidance do provide for a certain level to which such guidance binds Sebi. Because of this concern, parties would need to pay even greater care in reviewing the consent order to ensure that their interests are protected.

A positive change is that now, a party need not wait for it being found to have committed the violation. It can, it appears, come forward, confess, co-operate and agree to a consent order. I am quite optimistic that Sebi will consider such suo motu confessions positively and levy lesser punishment.

Yet another major step forward is the setting up of a formal high-powered committee to review the proposals of parties for settlement. The FAQ had provided for an 'internal' committee. A party, of course, cannot complain too much about having an 'internal' committee since if he wants an independent entity, he always has the option of appeal!

However, Sebi, in a bold measure that perhaps comes with the realisation that there may be concerns on the impartiality of a committee internal to Sebi, has set up a wholly external committee consisting of a retired judge and two external experts. I personally could not have asked for anything better or more.

This committee would review the proposal and recommend action in the context of certain guiding factors laid down. What, one would ask, is the weight of such recommendations? Even here, Sebi has gone a step further. While, for obvious reasons of not appearing to have abdicated its powers, it has not stated such recommendations as binding on the adjudicating authority or other persons passing orders, it appears that such recommendations will have a very strong persuasive value with such authorities. It is very likely that such authorities would depart from such recommendations.

The consent orders would be placed on Sebi's website. Clearly, this would have a snowball effect. The more such orders that are transparent and fair, the more the number of persons who come forward to make use of this scheme to make the proverbial clean breast and a fresh start.

While there are major steps forward, Sebi continues to insist that a party agreeing to a consent order cannot claim that it is not guilty. This can discourage parties. Sebi's concern can be appreciated but the importance for a party to claim that it has not been found guilty can also not be understated.

Perhaps a better way is a disclaimer that states that such an order neither finds the party guilty nor it acquits it. Thus, the party can proclaim that it has not been found guilty and Sebi can say that it has not let it off!

Will the scheme be successful? The Circular points out that more than 90 per cent of similar matters in the US are settled through such consent orders. Perhaps the comparison is not wholly apt since litigation costs from both sides in the US are comparatively higher than in India.

Still, the figures make a case for experimenting with such a scheme in India, particularly since one finds that many old cases are still pending in the pipelines of Sebi itself, not to speak of SAT and the courts.

Sebi's seriousness and positive approach are also shown by a requirement made by the Circular that every show cause notice issued by Sebi will specifically tell the accused that he can opt for the Settlement Scheme. Thus, good intentions and a reasonably sound system both are in place. Only time will tell whether the queue shifts from the judicial system to the Settlement Scheme.

The author is a chartered accountant.