Cease and Desist Orders and Management by Administrator (Sections 18 and 19)

Once the Authority has found or foreseen a violation, it needs ways to stop it. Section 18 of the PFRDA Act gives the Authority a simple and powerful remedy, the cease and desist order, against any person. Section 19 provides the most drastic remedy in the Act: where the central recordkeeping agency or a pension fund is acting against subscribers, its management may be taken over by an Administrator appointed by the Central Government.

1. Cease and Desist Orders (Section 18)

Elements

• Inquiry first: the Authority must have caused an inquiry to be made. The finding must rest on the material gathered.
• Any person: the order is not limited to registered intermediaries. It extends to an unregistered entity that holds itself out as offering NPS services, or to an individual who causes a violation.
• Actual or likely violation: the order may be made where a person has violated or is likely to violate the Act, rules or regulations. The power is therefore both remedial and preventive.
• Committing or causing: the order may restrain the person from committing the violation directly or from causing it, which reaches those who direct or procure the wrong.
• Content: an order to cease (stop what is being done) and desist (not do it again).

Nature of the power

A cease and desist order is remedial, not punitive. Its purpose is to stop harm to subscribers, not to punish past conduct. Penalties are imposed separately, by an adjudicating officer under Section 30, and offences are prosecuted in court under Section 32. The same act may therefore lead to a cease and desist order, a penalty and a prosecution, each serving a different purpose.

Examples of use

• an entity marketing pension products as NPS-linked without registration;
• a point of presence charging fees beyond those permitted;
• an intermediary misrepresenting returns or the features of a scheme to subscribers;
• a pension fund investing outside the investment guidelines.

2. Management by Administrator (Section 19)

A two-stage process

1. Report by the Authority: where the Authority has reason to believe that the CRA or a pension fund is acting in a manner likely to be prejudicial to subscribers, it gives the entity a hearing and then reports to the Central Government.
2. Appointment by the Central Government: if, after considering the report, the Government considers it necessary or proper, it appoints an Administrator to manage the entity's affairs.

Features

• Limited to two intermediaries: the power applies only to the central recordkeeping agency and pension funds, because these entities hold the records and the money of subscribers. A failure in either affects the entire system.
• Hearing guaranteed: unlike the interim measures in Section 14(4) or directions under Section 15, the hearing here must be given before the report is made.
• Shared decision: the Authority initiates, but the Central Government decides. The involvement of the Government reflects the gravity of displacing the management of a company.
• Control by the Authority: the Administrator manages the entity under the direction and control of the Authority, in the manner specified by notification. The Authority can therefore steer the rescue or wind-down of the entity in the subscribers' interest.
• Regulations: the appointment of the Administrator and the manner of management are matters on which the Authority may make regulations under Section 52.

3. Why the Administrator Power Matters

• Subscriber money at risk: pension funds manage the accumulated savings of millions of subscribers over decades. A failure of governance cannot be left to ordinary insolvency processes, which are slow and designed for creditors, not beneficiaries.
• Continuity of records: the CRA keeps the records of every Permanent Retirement Account Number. An Administrator can keep the system running while a long-term solution is found.
• Parallels: similar powers exist for banks under the Banking Regulation Act, 1949 (supersession of the board and appointment of an administrator by the RBI) and for insurers under the Insurance Act, 1938.

4. The Ladder of Enforcement

Sections 14 to 19 together give the Authority a graduated set of responses, which allows it to match the response to the seriousness of the problem:

1. Information and inspection under Section 14(2)(o) and 14(3);
2. Directions under Section 15;
3. Investigation under Section 16, and search and seizure under Section 17;
4. Interim measures under Section 14(4), such as freezing assets;
5. Cease and desist orders under Section 18;
6. Penalties under Section 28 and suspension or cancellation of registration;
7. Administrator under Section 19, for the CRA and pension funds;
8. Prosecution for offences under Section 32.

Proportionality is an important principle in choosing among these. The Securities Appellate Tribunal, hearing appeals against PFRDA orders under Section 36, may reduce or set aside a measure that is out of proportion to the violation found.

5. Questions Arising

Can a cease and desist order be made against a person who has not yet violated the law?

Yes. Section 18 covers a person who is likely to violate the Act, rules or regulations. The finding of likelihood must still rest on material gathered in an inquiry, such as preparations to launch an unregistered product. A bare apprehension is not enough.

Why is the Central Government involved in appointing an Administrator?

Displacing the management of a company is a serious step that affects its shareholders and creditors as well as subscribers. Requiring a report by the Authority and a decision by the Government adds a second level of scrutiny, while the Authority's control over the Administrator keeps the process focused on subscribers.

Can an Administrator be appointed for a point of presence?

No. Section 19 is limited to the central recordkeeping agency and pension funds. For other intermediaries, the Authority relies on directions, cease and desist orders, penalties and suspension or cancellation of registration.

6. Related Topics and Provisions

• Duties, powers and functions of the Authority (Section 14)
• Power to issue directions (Section 15)
• Investigation, search and seizure (Sections 16 and 17)
• Central recordkeeping agency (Section 21)
• Pension funds and the NPS Trust (Section 23)
• Penalty, adjudication and offences (Sections 28, 30 and 32)