SC asks Sebastin to file fresh petition in High Court for early hearing

The Supreme Court, ruling in favour of A Sebastin, has asked him to file a fresh petition in the Bombay High Court, seeking an early hearing in a case related to his severance from the NSE

The Supreme Court has asked A Sebastin, a former employee of the National Stock Exchange (NSE), to file a renewed petition in the Bombay High Court, which seeks for an early hearing of a case related with various dues of Mr Sebastin from the NSE. This is the second time the apex court has ruled in favour of Mr Sebastin.

Earlier, the Supreme Court, while dismissing an appeal of the NSE, had passed strictures on the Exchange. The Supreme Court dismissed NSE’s petition for quashing the orders of the Bombay High Court and asked the Exchange and its top brass to face a criminal case in the Mumbai Metropolitan Court.

Mr Sebastin had filed a petition in the Bombay High Court requesting an early hearing of his application related with dues owed to him by the NSE. However, the High Court rejected his application. Mr Sebastin filed a special leave petition in the Supreme Court, which on 12 April 2010 asked him to file a fresh petition in the High Court for early hearing of his appeal.

The Supreme Court order dated 12th April said: "As the earlier rejection of the interim prayer was on the assumption that an early hearing application will be entertained, it is always open to the petitioner to renew his prayer for interim relief in accordance with law."

Mr Sebastin is likely to file his fresh petition in the High Court after the summer vacations.

Mr Sebastin, a compliance officer with the NSE, had resigned from the bourse in October 2008. Later he joined Multi Commodity Exchange of India Ltd (MCX) and came under a nasty personal attack from the NSE. The Exchange has still not cleared various dues of Mr Sebastin, except his provident fund (PF), since holding back PF is illegal.

The NSE, through a clarification, had said that Mr Sebastin’s “services were terminated” because he “had not met the company’s requirements.” It also indicated, without being specific, that the employee had failed to complete “severance” formalities.

Mr Sebastin, however, has evidence of a formal handover of charge, an exit interview and an email assurance that he would be relieved. He says that the public notice was issued after he sent a legal notice to the NSE on 4 April 2009, demanding severance benefits like PF and gratuity.

The NSE credited his PF account immediately after receiving a legal notice but till date had not paid other dues, including gratuity, super-annuation, leave travel allowance (LTA), medical allowance, leave encashment, additional ex-gratia and salary for 14 days in November 2008, together amounting to about Rs32.50 lakh.

Since the Exchange is flush with funds, derived from profits of a well-preserved, near-monopoly commercial position, it can afford to fight a case right up to the Supreme Court. However, the question is whether this was necessary and whether it merely reflects its bullying antics, as has now been proved by the High Court and Supreme Court judgements.

We sent an email to the NSE requesting details of the Exchange v/s Sebastin case, such as legal expenses, cost of public notice and other costs. But Divya Malik Lahiri, the recently-appointed head for corporate affairs and communications, NSE, replied in one line saying, “I am sorry, I won’t be able to comment on these things."

According to industry sources, the public notice published in various business newspapers would have cost the NSE about Rs20 lakh-Rs25 lakh. Also hiring the top legal brains for fighting cases from lower courts to the Supreme Court is also not without a financial burden that the Exchange may have to bear with. {break}

The Sebastin Case

In October 2008, A Sebastin, a compliance officer in NSE, resigned from his job and joined MCX. On 6 April 2009, the NSE issued a ‘public notice’ in all leading business newspapers with the employee’s photograph announcing that anyone dealing with the “said Mr A Sebastin” would do so at their own risk.

Normally, such notices are published only if an employee is guilty of financial fraud or a serious betrayal of trust. However, there is no such mention. Instead, the NSE issued a clarification in response to media queries, saying that Mr Sebastin’s “services were terminated” because he “had not met the company’s requirements.” It also indicated, without being specific, that the employee had failed to complete “severance” formalities.

Mr Sebastin, however, has evidence of a formal handover of charge, an exit interview and an email assurance that he would be relieved. He says that the public notice was issued after he sent a legal notice to the NSE on 4 April 2009, demanding severance benefits like PF and gratuity.

Holding back PF is illegal, so the NSE reportedly credited his PF account immediately after he served the legal notice but simultaneously issued him a termination letter followed by the public notice, almost six months after he had quit the Exchange.

We published the case under the title "Vindictive Action?" on our website www.suchetadalal.com; it has received 28 comments (so far) from readers. One reader, Mr Golak, said: “NSE should try to find out why NSE ex-employees are willing to join MCX-SX and sort out the problems rather than take this kind of vindictive action. As an organisation, it has failed to come out of the whims of a few people who run the Exchange on their own sweet terms.”

Another reader, Mr Satish Swaminathan, commented, "If there is attrition, then the human resources (department) should be pulled up for explanations and probably try to get to the root cause and address it. I also fail to understand how the NSE is proposing to beat its competition by stopping people and being vindictive when they join a competing firm.”

“It is highly unethical behaviour by a highly professional company like NSE. Such a step by any company cannot be justifiable as employees are a company’s human assets and not physical assets,” said ‘SS’, another reader.
 

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COMMENTS

DWARIKA PRASAD

6 years ago

Pl give your details of SLP No. and date of order by SC.My notice of motion is also pending before Bombay High Court.

DWARIKA PRASAD

6 years ago

By direction of supreme court to file fresh application before Bombay High Court does not imply early hearing direction to decide the payment of terminal benefits.Pl come out in what way the direction of SC will be helpful to take up the case for final hearing?
-Dwarika Prasad
General Manager
ONGC
Mumbai
Mobile No.9869222046

Don’t let private cos override public interest in KG Basin: EAS Sarma

In the wake of the recent SC ruling, the Union government cannot abandon its own obligation to exercise due diligence and prudence in fixing the price of gas & determine the sectoral and regional allocations, a former secretary to the government of India has said in a letter to the prime minister

EAS Sarma, a former secretary to the government of India, has requested the prime minister not to allow the government to be pressurised by a private company to overlook the public interest involved in the KG Basin gas development.

In a letter dated 7th May, Mr Sarma wrote to prime minister Dr Manmohan Singh saying that in the wake of the recent court ruling, the Union government cannot abandon its own obligation to exercise due diligence and prudence in fixing the price of gas, determine the sectoral and regional allocations and take all such measures necessary to prevent the supplier from exercising monopolistic leverage to the detriment of public interest.

Here is the letter written by Mr Sarma...

To

Dr Manmohan Singh
The Prime Minister
New Delhi.
 
Dear Dr Manmohan Singh,
 
Subject: Natural Gas Pricing—Latest orders of the Hon'ble Supreme Court
 
I am happy that the Hon'ble Supreme Court has ruled unambiguously that the Production Sharing Contract (PSC) with private parties cannot override the inalienable right of the State and the people of the country to the natural gas resources that belong to them.
 
As reported in the press, it is significant that the Hon'ble Supreme Court has also made the following landmark observation.
 
"It is the duty of the Union to make sure that these resources are used for the benefit of the citizens of this country. Due to shortage of funds and technical knowhow, the government has privatised such activities through the mechanism provided under the production sharing contract. It would have been ideal for the Public Sector Undertakings (PSUs) to handle such projects exclusively."

Against this background, I wish to impress upon the government that the Central government cannot, in the wake of the latest Court ruling, abandon its own obligation to exercise due diligence and prudence in fixing the price of gas, determine the sectoral and regional allocations and take all such measures necessary to prevent the supplier from exercising monopolistic leverage to the detriment of the public interest.

In this connection, I enclose here a copy of the detailed letter dated 22 August 2009 I had written to you on these very same issues that continued to be relevant even after the latest Court order.

The price fixed by the Empowered Group of Ministers (EGoM) is based on a contrived bidding format that was more beneficial to RIL than the public. The present arrangement of the EGoM administratively fixing the price goes against all canons of competitive price fixation. The EGoM had, before it, the details of the price quoted by the supplier in a global competitive bid floated by NTPC. It was around $2.34 per million metric British thermal unit (mmBtu). Ignoring that price in favour of the price obtained by RIL through a procedure that would fail to stand the test of good competition, the EGoM adopted a non-transparent process to accept the price indicated by RIL, raising questions of propriety.

When I requested both the ministry of petroleum and the Cabinet secretariat to provide me copies of the EGoM proceedings under the RTI Act, the government chose to cite "confidentiality" as an excuse and deny me the same. (Perhaps, the latest move on the part of the government to amend the RTI Act to preclude Cabinet proceedings from the public is a sequel to this, to keep such crucial decisions from public knowledge!)

I request the government to review the price fixed for the Krishna Godavari (KG) Basin natural gas in such a manner that the price is in the public interest. The mechanism of pricing should not be politicised. Instead, it should be entrusted to a statutory authority like the petroleum regulator, as already envisaged in the PSC itself. The government should also carry out an economic evaluation to arrive at the sectoral allocation priorities for natural gas, as suggested in my earlier letter.

I may mention in this connection that gas development is known to cause land subsidence. In the case of KG Basin gas, the ministry of environment had conveniently bypassed evaluating this aspect while according environment clearance to RIL. Some concerned citizens had to approach the Hon'ble Andhra Pradesh (AP) High Court to intervene and order a fresh environment appraisal of the project. The KG Basin comprises the heartland of agriculture of Andhra Pradesh and if there is land subsidence in that basin, it will break the backbone of the state's economy. The state and the Central governments are oblivious, indifferent and perhaps insensitive to this impending calamity that is waiting to happen.

I hope that the government does not allow itself to be pressurised by the private company to overlook the public interest involved in KG Basin gas development.

Regards,
 
Yours sincerely,
 
EAS Sarma
Former Secretary to GoI

User

Sukuk derivatives modified

In theory, derivatives are supposed to hedge risks in developed markets. Often, they have the reverse effect and they can create a disaster far larger than the problem that they were supposed to cure

Derivatives are all the rage these days. Presently, the US Senate is debating a Bill that would establish a better regulatory framework for derivatives. Meanwhile, the eurozone is struggling with the effects of skyrocketing derivatives for the sovereign debt of Greece and other members of the EU. A new derivatives market has just opened in China and both the trading and prices have been rising at a spectacular rate. Not to be outdone, the International Islamic Financial Market (IIFM), a Bahrain-based Islamic capital markets body, and the International Swaps and Derivatives Association (ISDA) have come up with standardised documentation for derivatives instruments that comply with Sharia, or Islamic law.

In theory, derivatives are supposed to hedge risks in developed markets. Often, they have the reverse effect and they can create a disaster far larger than the problem that they were supposed to cure. There are several reasons.

The first has to do with counter-parties. Derivatives on their simplest level are nothing more than contracts. A contract is simply an agreement between two parties to do something in the future. In the case of a derivative, that often requires the payment of money by one party to another upon the occurrence of a specific event—usually a loss or a default.

When the triggering event occurs, the party who experienced the loss asks the other party to the contract, the counter-party, to pay up. But what happens if they don’t? What happens if they can’t or won’t? In the United States, this is exactly what happened. Many of the big Wall Street banks like Goldman had AIG as a counter-party. When the collapse occurred it became clear that AIG couldn’t fulfil its side of the bargain. As a counter-party, it was a failure and the derivatives contract would have been worthless, except that the US government stepped in and guaranteed the deal.

This is still an especially difficult problem or for the eurozone and Islamic finance, because of the extra layer of cross-border guarantees and enforcement. The issue is having dramatic consequences in the EU, where European banks are so worried about counter-party risk that interbank lending is limited to overnight and spreads over three-month rates have soared. All of this is due to counter-party risk across borders.

The next question is how is the contract to be enforced? It may be possible to enforce these contracts in the US and EU. Emerging markets are a totally different story. The Chinese financial system is replete with massive toxic assets, because it is basically impossible to collect a debt. Any problems with their new derivatives markets will most likely not be resolved. Other emerging markets are hardly better.

The cross-border issue is also a problem for regulators. Which regulators are responsible for policing these transactions? We also have to assume that there are regulators, that they have jurisdiction and that they both will and can enforce the regulations on their respective country’s books. Legal disincentives without enforcement by regulators or courts are worthless. So would be the value of derivatives as insurance.

The real problem with counter-parties often is asymmetry of information. The contract or derivative—whether standardised or not—is a private transaction. These derivatives are not yet traded on any exchange. One of the main causes of the 2008 financial collapse and the present strains in Europe is the lack of information. No one knows the extent of the interconnections, so without information markets can collapse. Derivatives increase the interconnections and decrease the information. One of the main aspects of the new US reform would be to require derivatives to be traded through a clearing house. This would provide both transparency and the potential to both provide and monitor collateral.

The end result may not be hedging risk, but creating more. The illusion that a specific investment is protected from loss may result in investors taking risks that they would not otherwise have taken. If they feel protected by the derivatives contract, there is less of an incentive to do more due diligence. This was proved recently when the holders of unrated illiquid “asset-based” sukuks (Islamic bonds) realised that their investments were in fact not collateralised.

No doubt derivatives if properly regulated might actually do some good, but we have to wonder why they are so important. After all, this market is quite new both in terms of the scope and size. Markets did pretty well for most of their history without these new instruments. The answer came at the end Financial Times article about sukuk derivates. According to a banker at a Western bank, “In theory, the potential market size is several billion dollars per annum of structured investment products and hedging instruments, but we’re barely scratching the surface today.” So the real reason has nothing to do with risk management, but a lot to do with profit management for Western investment banks.

(The writer, William Gamble, is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).
.

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COMMENTS

Adil MSATFA

7 years ago

I am afraid wrangling among scholars and wiggle room in interpretation of Shariah principles threaten to derail any attempt to arrive at global standards in Islamic finance
:(

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