Crucial meeting of revamped SEBI board next week to reconsider NSDL case

Supreme Court had directed market regulator to take a second look at the inquiry report which was previously thrown out, in an obvious attempt to hide wrong-doings

The directors of the Securities & Exchange Board of India (SEBI) will meet on 26th of April to re-consider its exoneration of the National Securities Depository Limited (NSDL) on the direction of the Supreme Court of India. Although technically the SEBI board is meeting again, there will be many new faces around the board room table this time. The directors will once again consider the report of a two-member bench of the SEBI board, whose findings against NSDL were thrown out by a previous set of board members calling them "non-est" (or void).

For starters, the meeting will be headed by the new chairman UK Sinha. The previous meeting was chaired by TV Mohandas Pai, who is still on the SEBI board. Mr Pai stepped in since the then SEBI chief, CB Bhave, had recused himself from decision-making. Mr Bhave headed NSDL when SEBI initiated action against the depository in connection with the IPO scam.

Dr Mohan Gopal (chief of the National Judicial Academy) has been replaced by VK Jairath, former principal secretary of Maharashtra. Dr Gopal also remained absent from the previous meeting as he was one of the two members of the bench, whose findings were considered null and void (or non est), giving a clean chit to NSDL and CDSL.

Similarly, the Reserve Bank of India will be represented by Anand Sinha (instead of Usha Thorat) while the Ministry of Corporate Affairs will be represented by DK Mittal (in place of R Bandyopadhyay). Most importantly, Dr K P Krishnan, joint secretary, capital markets, who dominated all decisions related to the capital market and took the lead in burying the NSDL investigation that exonerated CB Bhave, has been replaced by his successor Dr Thomas Mathew.

The only constant are the three whole-time directors (WTDs) of SEBI, of whom two, MS Sahoo and KM Abraham, are set to complete their term in a few months. They were vociferously in the Bhave/NSDL camp.

In February 2010, the SEBI board focused on technicalities to exonerate NSDL of the charge of failing to detect the massive manipulation of initial public offering (IPO) allotments by a set of operators who packed the retail quota with multiple applications. The exoneration happened at the end of a long series of dubious decisions which ran as follows:
1.    Appointment of CB Bhave as SEBI chairman when there were SEBI investigations pending against the organisation he previously headed.
2.    The assumption, implicit in this decision that NSDL was not even guilty of minor transgressions or carelessness.
3.    Attempt to artificially "ring-fence" Mr Bhave from NSDL-related issues.
4.    Appointment of a two-member board committee (comprising Dr Mohan Gopal and former RBI deputy governor V Leeladhar) to decide NSDL-related issues.
5.    The mistake in assuming  that NSDL will get a clean chit from the bench.
6.    The attempt to bury the Gopal-Leeladhar report for several months.
7.    Making the report public only after a public interest litigation was filed in the Andhra Pradesh High Court.
8.    Exoneration of the rival Central Depository Services Limited (CDSL) through a one-line order, although charges against it were far more serious.
9.    And finally the controversial board meeting which exonerated NSDL and refused to consider a contrary legal opinion by no less than JS Verma, former chief justice of the Supreme Court of India.

Unfortunately for SEBI, a Delhi-based NGO called Manav Adhikar filed a special leave petition before the Supreme Court, which led to a direction by the apex court (on 28th March 2011) to reconsider its decision.

Interestingly, the humiliation heaped on Dr Mohan Gopal, a man with a formidable legal knowledge (apart from heading the National Judicial Academy, he taught law at the Harvard Law School) is probably unparalleled in so-called independent government bodies.

In fact, apart from re-examining its orders, the SEBI board ought to re-examine its completely inadequate regulatory authority over NSDL. As Moneylife has pointed out, the depositories are governed by a separate statute, which is administered by SEBI, but have grown far beyond their original mandate into areas where SEBI has no jurisdiction. Consequently, much of the business is dangerously outside any supervisory or scrutiny mechanism.

With such overwhelming evidence of such biased decision-making at the highest levels on this issue, and the Supreme Court deeming it fit to reopen the issue, it remains to be seen which way the new SEBI board, under a new chairman, will tilt. Will it go for the truth or for the status-quo?

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Ramesh Bhat
1 decade ago
Great Job.

Appreciate SEBIs action in this. SEBI is working well under the new chairman.

Truth Always Wins.
- Ramesh Bhat
1 decade ago
great job done by moneylife and sucheta. c.b.bhave must be very close to higher ups in power, especially to fm who often boasts of bringing zero load financial products era in the world through india!
1 decade ago
Now only we come to know that sidelining his personal problems,he harshly taken decisions against thousands of mutual fund brokers and divert the public and others thought, though he has failed with IRDA.
sanjay shah
1 decade ago
Mr Bhave during his tenure with SEBI has taken very harsh decision in many matters including cut in brokerage for mutual fund distributor, it is surprising when investigation is going against him how he his appointed as SEBI chief. He may be aware of the the scam, because such a big scam could not have have happened when a person of his calibre his heading a big exchange of india.
Vijay Trimbak Gokhale
1 decade ago
It is necessary to refresh our memory to understand this in right perspective.PTI had reported on 28.3.2011 that SC has asked SEBI to clarify its stand on whether it was going to accept the report of a high-powered committee, which had probed IPO scam of 2006 and the role of NSDL in it. It further asked "Sebi to consider whether its board will reconsider the special committee's December 4 order in respect of NSDLand DSQ securities and to pass an appropriate resolution and place before this court". The Supreme Court also pulled up Attorney General Goolam Vahanvati appearing for Sebi for not giving any stand in this matter. It was also not satisfied with his reply that the board of Sebi has already taken a decision on the report of the committee, which had declared it as "non-est(does not exist)."

Earlier, on February 21, during the last hearing, the apex court had expressed its concerns over Sebi's outright rejection of the report and had asked the market regulator to give its stand within two weeks. It had further remarked that as Committee comprised senior Sebi officials, it should have been considered by the regulator. The apex court was also not convinced by submissions of Sebi that the committee exceeded its limit. The bench had shot back, "we would like to see. Show us a single order given by the committee in NSDL matter (where it) exceeded its jurisdiction. "Whatsoever they (committee) said (against Sebi) was self retrospection and this is not wrong. You could not have ignored," the bench had said.

The committee passed three orders and found that NSDL had failed in its duty of supervising, investigating, monitoring data and directed (it) to conduct an independent inquiry to establish individual responsibility.

Moreover, the committee had given serious remarks over the manner in which Sebi was functioning and handled the entire episode. It noted that the Sebi had failed to carry out its' regulatory role adequately and recommended the market regulator to make a Code of Conduct for depositories.

It is Mr. Pai (an INFOSION when appointed as a public representative on the board of SEBI and soon to cease to be so) own to the country a lot of explanation as he presided over the meeting to carry out "Operation grand exoneration".

There are instances of some entities refusing to submit to RTI regime despite the fact the fact that it is a public authority under RTI Act 2005 is as clear as sunshine and allow the matter to languish in courts wasting shareholders’ money.

Some say this is no management excellence but abuse of the process of law. Unlike a normal petitioner who is interested in early hearing and disposal of case and requests court to do so, such petitioners choose to keep quiet. In any case truth comes out some day making them cut a sorry face. But they do not feel sorry about cutting sorry face. Pleasing their political bosses and securing plum government postings is their motto in life. Integrity and self respect is secondary to them. God only knows whether conscience pricks them. Their political bosses may get pleased but the credibility and image in the minds of citizens suffers a lot. People do not respect them. For them intelligence is a quality which enables them to know which side of the brad is buttered.

People speak grand things and give sermons about transparency when they either wear the mentle of a regulator or speak in 5 star tea biscuits seminar but are known to do quite the opposite.

Long live such champions of corporate governance and transparency.

But there is a ray of hope in judicial activism which will force them to act.
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