The former member of the SEBI Board, in a letter to the prime minister, alleges how an "informal clique of current and serving bureaucrats, SEBI officials, lawyers and corporate interests orchestrated a subversion of the due process of law". It vindicates Moneylife's stand on various regulatory issues that large media houses have been ignoring
Dr G Mohan Gopal, who heads the National Judicial Academy (NJA) at Bhopal, is in the news for his letter to the prime minister, pointing to “the gross abuse of power and corrupt practices in the SEBI board” to “protect SEBI Chairman CB Bhave”. Moneylife Foundation has accessed the letter written to Dr Manmohan Singh on 24 December 2010, which was obtained by activist Subhash C Agarwal using the Right to Information Act (RTI).
The letter, we find, is far more explosive and detailed than has been indicated by media reports so far. Dr Gopal has not only described the manner in which SEBI systems and processes were vitiated to protect Mr Bhave, but it also highlights four “structural flaws” in the “legal framework for securities regulation”, something that other self-appointed market experts have been labelling as perfect and getting favourable mention in the media.
Moneylife has already reported at length on the NSDL issue, which Dr Gopal describes as “ ’Sebi-under-Bhave’ judged and exonerated ‘NSDL-under-Bhave’ through a process that was thinly disguised as independent, but was, in fact, deeply vitiated and subverted”.
Here are highlights of the many larger issues raised by Dr Gopal, on which the prime minister’s office has remained silent for the past five months.
On subversion of the action against NSDL: Dr Gopal says, “an informal clique of current and serving bureaucrats, SEBI officials, lawyers and corporate interests orchestrated this subversion of the due process of law. They illegally interfered with independent SEBI adjudication, manipulated legal opinions, suppressed and misrepresented facts and misled the SEBI Board and Government officials about the legality of the Orders. Law, regulations and established precedent were violated. NSDL was given undue special treatment. NSDL was relieved of a fine of crores of rupees, and SAT decisions adverse to SEBI but favouring NSDL, were not appealed to the Supreme Court as they should have been”.
On how the SEBI Board declared orders against NSDL as void: Dr Gopal says, “One of the most shocking and unprecedented actions taken by SEBI to exculpate NSDL was the board–for the first time in SEBI’s history–setting aside quasi judicial orders which are, under the law, subject only to judicial review. He goes on to describe how the SEBI board “entirely disregarded” a statement by one of India’s most eminent and respected jurists (former chief justice of India, J S Verma) who had said that SEBI’s action “violated established legal and Constitutional principles”.
On securities law: Dr Gopal says, four structural fault lines in the legal framework for securities regulation made this abuse of power possible. These are:
1. Inadequate transparency, public accountability; and parliamentary oversight: Dr Gopal points out that unlike in India, the US Securities Exchange Commission meetings are open to the public and the US Senate exercises close scrutiny over its workings. There is nothing comparable in India. There is also no framework for whistleblower protection. Dr Gopal points out how he was subjected to retaliation and attack without any protection. (It is stunning commentary of the poor governance in India that an extremely privileged and connected member of society, who heads a premier institution like the National Judicial Academy should complain of such harassment). Importantly, Dr Gopal joins voices like ours at Moneylife when he says, that there is ‘a serious deficit in investor voice’, essential for effective governance. He says, ‘SEBI needs to encourage investor voices instead of being hostile to them unless they are friendly, in which case selective patronage may be extended to them’. Some of the friendly voices which receive selective patronage are large media houses.
2. Lack of protection against conflict of interest: Dr Gopal says that a Code of Conduct for the SEBI board was evolved at his instance, but the “mechanism was violated and then dismantled in the context of the NSDL matter”. He says, that whole-time members of the SEBI board who were to be explicitly excluded from NSDL matters (since they report to the SEBI chairman operationally) were included in the decisions to favour Mr Bhave. Dr Gopal points to the role of Mr Mohandas Pai, who represented a SEBI-regulated entity, to chair the meeting that finally exonerated NSDL. The SEBI board, he says, “generously excused the conflict of interest arising out of the business relationship between Infosys and NSDL”. Also, “it was perhaps for the first time in Indian history that judicial power was exercised by a serving private sector corporate official”. As a result of these conflicts of interest, an influential bureaucrat-corporate-media nexus has emerged that has immense power to influence SEBI decision-making to its own advantage.
3. Ineffective framework for law enforcement: Dr Gopal says that the structure for law enforcement in SEBI is seriously flawed (something that Moneylife has repeatedly pointed out). There are overlapping enforcement and punitive provisions in the Act, which need to be rationalised. This subjects a regulated entity to multiple proceedings without a clear distinction between them. He also says, as we have in the past, that “major violations” established through investigation “are excused without punitive action through opaque consent orders and faulty adjudicator orders favouring wrongdoers–in such cases review by SAT (Securities Appellate Tribunal) would never be sought” because neither SEBI nor the wrongdoer want it. Consequently, “investors at large and the market are the voiceless victims”. Dr Gopal points out to how a company guilty of “criminal market manipulation” was let off by a whole-time member asking it to “be more careful in future” (we believe this refers to the Zee group’s role in the Ketan Parekh scam). He says, SEBI does not have “adequate focus and priority on law enforcement”, with the result that it bent “backwards and violated the law to protect a favoured regulated entity rather than pursue it to enforce the law”.
4. Outdated governance structure: Under this head, Dr Gopal says that the SEBI Act badly needs to be redesigned. It contains “too many explicit and implicit levers of bureaucratic and political control of the regulator on one hand and too little public oversight, transparency and public accountability on the other hand. SEBI in effect is run by an informal caucus of serving or former civil servants rather than domain experts”. Having said that, Dr Gopal accuses the finance ministry representative (Dr KP Krishnan) of exercising “undue influence in the functioning of an independent regulator through informal back channels, through which SEBI officials were funneling information and documents to him, which he legally should not have access to. Dr Gopal says, “the government’s interaction with the regulator would be ‘over the counter’ and not ‘below the table’.” Apart from this stunning indictment, the former SEBI board member, also says how SEBI and the National Institute of Securities Management (its education affiliate) “command huge financial resources with little accountability and transparency in its use”. Further, the SEBI board “lacks relevant expertise” because it is “dominated by babus–serving and ex-bureaucrats”.
Dr Gopal ends his five-page letter by asking the prime minister to order a high-level inquiry into SEBI decisions in relation to NSDL during Mr Bhave’s tenure and to look into the structural issues raised by him.
What did the Prime Minister do? He merely forwarded the letter to the finance ministry. Frankly, even today, this explosive letter by Dr Gopal will probably attract some media attention, only because SEBI has been forced to do an about-turn due to the activist interest shown by the Supreme Court of India into the manner in which SEBI has been subverting regulations.
Here is a copy of the letter written by Dr Mohan Gopal to the prime minister
The food ministry has issued export release orders for 91,685.91 tonnes of sugar to 83 mills. The release orders for nine mills were not approved due to problems in their agreements or applications
New Delhi: The food ministry has issued export orders for nearly 92,000 tonnes of sugar to mills till last week out of the total quantity of five lakh tonnes that the government has allowed for outbound shipment, reports PTI.
Sugar mills cannot export their produce without a release order from the food ministry.
On 22nd March, an Empowered Group of Ministers (EGoM) on food headed by finance minister Pranab Mukherjee had allowed mills to export 5 lakh tonnes of sugar under an Open General Licence (OGL), which do not entail any restrictions.
The decision was notified on 19th April. Out of five lakh tonnes, 51,500 tonnes was reserved for neighbouring countries.
The remaining quantity was allocated between the mills on the basis of their average production over the last three years.
According to the latest data, the ministry has issued export release orders for 91,685.91 tonnes of sugar to 83 mills. The release orders were not approved for nine mills due to problems in their agreements or applications.
The EGoM had decided to allow mills to export a small quantity of 5 lakh tonnes as the country’s output is estimated to cross domestic consumption after a gap of two seasons.
Prior to this, the government had allowed mills to fulfil their export obligation of about one million tonnes.
Sugar production of India—the world’s second largest producer after Brazil—is estimated to rise to 24.5 million tonnes in the 2010-11 sugar year (October-September) from 19 million tonnes in the previous year. The country’s annual demand is pegged at 22 million tonnes.
In the 2008-09 and 2009-10 sugar years, sugar production was below domestic consumption at 14.53 million tonnes and nearly 19 million tonnes, respectively. The country had to import about six million tonnes of sugar to meet the shortfall.
Mundra Port and Special Economic Zone reported a net profit of Rs676 crore in 2009-10
Mundra Port and Special Economic Zone (MPSEZL), an Adani Group firm, today reported a growth of 35.82% in its consolidated net profit at Rs918.14 crore for the year ended 31 March 2011. The company had reported a net profit of Rs676 crore in 2009-10.
Net sales of the company during the year rose by 33.74% to Rs2,000.11 crore vis-a-vis Rs1,495.52 crore in FY10, it said in a filing to the Bombay Stock Exchange.
During the year, Mundra Ports’ revenues from port and SEZ activities was at Rs1,863.40 crore, registering a growth of 34.29%, the filing said, the company had earned Rs1,387.53 crore from the same segment in 2009-10.
However, the company did not report its financial numbers for the quarter ended 31 March 2011.
On standalone basis, the company’s net profit was Rs986.16 crore in FY11, registering a growth of 40.68% compared to Rs700.98 crore it had reported last fiscal. Its net sales were also up by 40.73% at Rs1,792.82 crore.
The Adani Group firm had announced last week that it has acquired long term lease to Abbot Point Coal Terminal in Queensland, Australia for about $1.8 billion, which also marks the beginning of the company’s business expansion outside India.
The port, known as Abbot Point X50 Coal Terminal (APCT), is a profit-making port with expected revenue of 110 million Australian dollars in 2011. It presently has two berths capable of handling cape-size vessel of over two lakh tonnes dead weight tonnage (DWT), with annual installed capacity to load 50 million tonnes.
The company has recently won a contract for developing an import coal terminal at Vishakhapatnam in Andhra Pradesh, while it aims to handle 200 million tonnes per annum cargo by 2020.
On Monday, MPSEZL ended 1.14% down at Rs130.50 on the Bombay Stock Exchange, while the benchmark Sensex gained 0.05% to 18,528.96 points.