Delayed justice in market violation cases makes pittance of penalties

Delays in resolving market violation cases by investigating agencies, market regulators, and the judiciary result in comparatively lenient penalties, according to legal experts. For example, the Securities and Exchange Board of India (SEBI) accepted National Stock Exchange (NSE) terms to settle ongoing co-location and dark fibre cases, paying ₹1,491 crore.

These cases had been investigated for over two decades and involved allegations of preferential market data access and preferential connectivity through the exchange's fibre network. Sonam Chandwani, Managing Partner and founder of KS Legal & Associates, raised concerns that prolonged resolutions and modest monetary consequences could make regulatory risk seem manageable, potentially encouraging non-compliant market participants.

Nirali Mehta, Partner at Mindspright Legal, emphasized that a regulator's approach can depend on various factors including the entity's role, culpability, investor harm, unlawful gain, mitigation factors, cooperation during investigation, and past actions against entities. SEBI's orders, when involving large amounts of disgorgement, may also have significant economic consequences beyond the monetary penalties.

Pradyun Chakravarty, Partner at King Stubb & Kasiva, Advocates and Attorneys, noted that when gains from wrongdoing far exceed penalties, the punishment may not be sufficient to deter misconduct. However, actions like disgorgement of ill-gotten gains, bans from market access, tighter compliance requirements, and reputational damage can often be more impactful than the fine itself.

SEBI could improve its approach by being more transparent about settlement figures and expediting case resolutions, according to Abhiraj Arora, Partner at Saraf and Partners. All comments must be in English, in full sentences, and cannot be abusive or personal.