By Vaneesa Agrawal
Securities lawyer Vaneesa Agrawal examines the provisions of the Union Budget 2016 and predicts its impact on SEBI and the securities market in the country.
1. More Members and Benches of SAT:
The Budget Speech of Hon’ble Finance Minister mentions that,
“I also propose to amend the SEBI Act 1992 in the coming year to provide for more members and benches of the Securities Appellate Tribunal”.
Since there is no corresponding provision in the Financial Bill, 2016, it seems that an amendment to SEBI Act will be brought later separately. It is pertinent to note that under Section 15K of SEBI Act, 1992, the Central Government by notification, can establish one or more Securities Appellate Tribunals. However, under Section 15L, number of members of SAT is limited to three. Hence, in view of the budget announcement, an amendment to these sections under Chapter VI B of SEBI Act, 1992 is likely.
Currently SAT, which is entitled to hear appeals against orders of SEBI, PFRDA and IRDAI, has a Presiding Officer – Justice J P Devadhar and a member Shri Jog Singh. It has been reported that Dr. C K G Nair, an Advisor in Ministry of Finance, is soon joining as 3rd member at SAT completing the bench strength.
2. New Derivative Products in Commodities:
SEBI has been advised to develop new derivative products in the Commodity Derivatives market. Following the merger of erstwhile commodities regulator, Forward Markets Commission (FMC), with SEBI, it may act as a catalyst for growth of commodities market.
3. Encouragement to International Financial Service Centres (IFSCs):
a. The transaction in foreign currency of sale of equity share or units of equity oriented funds or units of a business trust taking place on a recognised stock exchange established in international financial services centre shall not be liable to securities transaction tax. It is also proposed that the gains arising from transfer of such long term capital asset shall be exempt from tax.
b. The transaction in foreign currency of sale of commodity derivatives taking place on a recognised association established in international financial services centre shall not be liable to commodity transaction tax.
This will boost activities in GIFT city, which is the first international financial service center in India.
4. STT in Derivatives Hiked:
The securities transaction tax on sale of an option in securities where option is not exercised has been increased at the rate from 0.017 per cent. to 0.05 per cent. of the option premium. This is to take effect from 1st June, 2016.
5. No Service Tax on SEBI
There was a lot of coverage in media reports last year (such as here) stating that services rendered by SEBI are liable for service tax as they do not figure in the negative list or exemptions under law. Under the Union Budget now, regulatory services provided by Employees’ Provident Fund Organization (EPFO), Insurance Regulatory and Development Authority (IRDA) and Securities and Exchange Board of India (SEBI) has been exempted from Service Tax with effect from 1st April, 2016. It has come as a breather for SEBI.
6. Separate Central Law for Illegal Deposit Taking
For last some years, there have been rising instances of people in various parts of the country being defrauded by illicit deposit taking schemes. Some of the prominent cases in which SEBI has passed orders include PACL, PGFL, Saradha, Rose Valley, etc. Though there Depositor Protection laws in many of the States across the country, a separate central law for illegal deposit taking is a welcome step since the operation of such schemes are often spread over many States. Though SEBI regulates collective investment schemes, in the recent past, a parliamentary standing committee on finance had observed lacunae in the system and recommended a separate law.
Vaneesa Agrawal is a securities lawyer practicing in Mumbai and can be reached at vaneesa.abhishek@gmail.com