Dr. Justice V.S. Malimath Report First pages - Ministry of Home Affairs

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20.22 SELF-REGULATION, REPORTING SYSTEM AND LAW
20.22.1 There has always been a tendency to allow self-regulation, to a
large extent to professional as well as companies. This has also happened in the
cyber area, especially the Internet. The failure of the accounting, auditing and
other professionals have thrown up the weaknesses in the system. It is necessary
to intervene where such self-regulation has failed. At the same time
Government, to reduce the burden on itself, should work closely and
continuously with business by cleaning up regulations, enacting new laws and
help in prosecutions. This is particularly true of cyber crime. This is important
as fraudsters are clever and are ahead of Government and most companies in the
sophistication of their technical knowledge. There is of course the balance
between privacy protection, legitimate business use of private data and
prevention of cyber fraud. Here, we have to sacrifice some of our individual
interest in the interest of fraud prevention in Society. If this initiative is not
taken by the Parliament, there will be plethora on conflicting decisions by
different courts at different levels – now a new phenomenon- that will inhibit
the development of cyber commerce not to mention reduce the effectiveness law
enforcement investigations and international co-operation to reduce such
crimes.
20.23 CONFUSION IN REGULATION
20.23.1 The various frauds and scandals in the past but over the past two
decades in particular, have made it abundantly clear that we need for a clear
demarcation of responsibilities for and accountability of both the regulators and
regulated. For example, Banks come under regulation by both RBI and the
Banking department of Govt., of India and in a smaller way SEBI as well as
other company law regulators. When the RBI intervened to control the NBFC’s
it was both heavy handed and indiscriminate. RBI regulates banks and has its
representatives sitting as Directors on the board of banks, which is somewhat
anomalous. The regulation of National Bank for Agriculture and Rural Bank (
NABARD ), National Housing Bank (NHB) and such are not clear. Security
Exchange Board o India (SEBI) regulates the mutual funds but not the UTI
which has got into serious difficulties, in a sense victimising its customers. The
co-operative banks and chit funds are not under any kind of acceptable
supervision. In brief, the regulatory system, if it can be called that, has ensured
neither compliance nor accountability. In the last decade or so the unanswered
question which has emerged in how to make the regulators themselves
accountable. Hence the need for looking at the regulatory systems to ensure
that there is no confusion in regulation, participation by the regulators in the
regulated institutions; applicability of similar rules to those similarly placed and
no over-lapping or the issue of conflicting orders etc. This is necessary not only
to promote good governance but also to avoid conflict of interest.