SEBI, in exercise of its powers under the Securities Laws (Amendment) Ordinance, 2013 (“Ordinance”), has recently framed draft SEBI (Procedure for Search and Seizure) Regulations, 2013 (“Regulations”), laying down the procedure to be followed during different stages of search and seizure while conducting investigations, in addition to providing certain safeguards to the persons subjected to search.

As per the draft Regulations, if the investigating authority has reason to believe that any or all of the grounds under Section 11C of SEBI Act, 1992 exists, he may approach the SEBI Chairman, who after satisfying himself that it is necessary to do so, may issue a warrant of authority under which the investigating authority can enter and search any place, building, vessel, vehicle, computer etc. and proceed to seize such materials as he may be authorized to. The power of the SEBI Chairman to authorize search and seizure under the Ordinance, as has been reaffirmed in the draft Regulations is highly controversial, as other regulators such as the RBI and FMC are required to take prior approval of a judicial magistrate while exercising similar powers of search and seizure. Although the Regulations provide a list of rights for persons under search, such rights are illusory and provide very little substantive protection to persons under search.

The draft Regulations also lays down the procedure to be followed by the investigating authority while conducting search and seizure operations. Elaborate guidelines have been provided for the investigating authority to record the documents seized. It would be equally important for SEBI to train their investigating authorities to comply with the Regulations down to the last letter while undertaking a search operation under these Regulations, as any lapse in the procedure required to be followed may dilute the value of the evidence collected.

The draft Regulations require that an investigating authority has “reason to believe” or a “reason to suspect” before approaching the SEBI Chairman for issuance of a warrant under Section 11 C and under the draft Regulations. This is a subjective test and introducing such subjective elements may affect the investigation process and upset the overall outcome of a particular investigation. Therefore, it would be prudent to juxtapose SEBI's position as a regulator and purpose behind the investigations conducted by SEBI before the final nature and extent of SEBI's powers is crystallized, to prevent excessive concentration of regulatory power.