SEBI Raises Penalty for Fraudulent CIS to Rs 25 cr

The Securities and Exchange Board of India has come out with a gazette notification under which illegal mobilisation of funds through Collective Investment Schemes has been bought under the ambit of Fraudulent and Unfair Trade Practices Regulations (FUTP) for the purpose of increasing the penalty levied to Rs 25 crore from Rs 1 crore.

This was done to legally implement the decision take at the SEBI board meeting held on August 12 of treating illegal mobilisation of funds under the guise of CIS as a fraudulent practice.

According to the notification, a new clause (t) has now been inserted under Regulation 4(2) of the FUTP Regulation which declares “illegal mobilisation of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person” as an unfair trade practice.

Under the SEBI Act, any illegal mobilisation of funds under CIS could be penalised only under the residual Section 15HB which can levy a maximum penalty of Rs 1 crore only, whereas by enacting this amendment, the penalty leviable will be Rs 25 crore because it will be treated as violation of the FUTP Regulations.

The notification was issued by SEBI on September 6.

Business Line, New Delhi, 12-09-2013