The Insurance Regulatory and Development Authority of India (IRDAI), after spending over Rs22 lakh, has cancelled its recruitment drive due to reasons like wrong criteria for experience, age and re-allocation of unfilled vacancies, among others. However, despite undertaking the exercise and spending money from the public exchequer, IRDAI says there is no need for an inquiry. This was stated by finance minister (FM) Nirmala Sitharaman, while replying to a question from Javed Ali Khan (member of Parliament- MP) in the Rajya Sabha. Insiders from IRDAI, however, allege that the process for recruitment was created to select already chosen candidates and, thus, a lot of leeway was given in the eligibility and other criteria. 

 

As per the statement laid on the table of the house by the minister, "During the recruitment process, it was found that the minimum experience criteria mentioned in the notification did not explicitly specify the sector or area of work in which work experience was required. This led to some candidates without useful experience being considered for further stages of recruitment process. Accordingly, to maintain transparency and fairness, and to avoid possible future litigation, IRDAI cancelled the recruitment exercise vide notice dated 20 May 2019, as IRDAI reserves the right to cancel the recruitment at any stage of the process."

 

IRDAI had received several complaints about the recruitment process started in February 2018, Ms Sitharaman says. Most of the complaints were related with experience criteria, lowering of maximum age, re-allocation of unfilled vacancies, pattern of questions in written examination, rejection of application due to late receipt, reservation of posts and rosters. 

 

"Further, IRDAI have stated that the recruitment process was cancelled due to the reasons as stated above and as such no inquiry was necessitated," the statement says.

 

However, information provided by IRDAI to the Rajya Sabha is not complete. Information shared by the insurance regulator under Right to Information (RTI) Act reveals how the recruitment process was used to reject several candidates for selecting the chose ones. 

 

For example, for the post of deputy general manager (DGM) for information technology (IT), IRDAI had received 22 application. Out of this, almost 91% or 20 applications were rejected at scrutiny stage itself. The same thing was noted for the posts of DGM (legal), assistant general manager (AGM) for IT and legal, where 87%, 81% and 92.85% applications were rejected, respectively, at the scrutiny stage itself. This left very few or in case for the post of DGM (IT) only two candidates in the fray. 

 

In fact, there were two vacancies for the post of AGM (Legal). However, out of 42 applicants, only three remained after the scrutiny. Out of these three, only one candidate appeared for the written examination. If there is only one candidate appearing for the written examination, how would IRDAI make the selection? This raises doubts about the recruitment process itself.

Further, for posts like general manager (actuary) and DGM (IT) and DGM (legal), there was no written test conducted for reasons best known to IRDAI.

 

 

According to the reply, IRDAI has spent Rs22.47 lakh in the process, including advertisement, conducting of written examination and evaluation of answer scripts.

 

However, this is not the first time IRDAI had carried out similar faulty recruitment process in September 2017 as well. According to a whistleblower, the same criteria and work experience was fixed for September 2017 recruitment also, then how come it became the cause of cancellation for February 2018 recruitment process? 

 

He says, “The recruitment notification dated 27 September 2017 consisted a lot of peculiar conditions which were unprecedented, like issuance of two corrigendum, cancellation of vacancies after issuance of corrigendum, increasing maximum age to 55 years from 50 years and restricting internal employees and officers from applying for more than two pots.”

 

“The maximum age was increased to accommodate three officers from Life Insurance Corp of India (LIC),” he alleges, adding, “IRDAI’s order on 3 January 2018, confirms my apprehension as these three officers were selected for the posts of GM and AGMs.”   

 

During the September 2017 recruitment process, IRDAI was found rejecting all but one candidate at the scrutiny stage for a post. For the four posts of AGM (finance & accounts –F&A/investment), there were 56 applicants, out of which only one was selected for the interview by the regulator. 

 

 

The whistleblower  says, from the above table it is clear that the number of applications received by IRDAI were not too many and, yet, most of them were rejected at the scrutiny stage. IRDAI did not release a proper advertisement which led to issuance of two corrigendum and rejection of many applications at scrutiny stage. 

 

“The unprofessional approach and casual actions by the human resources (HR) department has brought immense share and has tarnished image of IRDAI in the public and made the regulator a subject of ridicule and laughing stock. Main reason why such things happen in IRDAI is there is a lack of robust and efficient vigilance mechanism. Hope after cancelling the recruitment process for this year, IRDAI would look at the vigilance mechanism to make the process robust,” he added.  

Strange as it may sound, the Telecom Regulatory Authority of India (TRAI) does not know if telecom services-providers are enforcing tariffs for unsolicited data package along with voice service on subscribers. 

 

Ravi Shankar Prasad, minister of communications, law & justice and electronics and information technology, while responding to a question in the Lok Sabha stated, "The TRAI is not in notice of the telecom service providers enforcing tariffs in respect of unsolicited data package along with voice services in the name of free service to be charged later from consumers."

 

Hans Raj Hans, member of Parliament (MP), asked the question about enforcing of tariffs by telcos. He had asked whether the issue of enforcing tariffs for unsolicited data package along with voice service in the name of free service only to be charged later from consumers has come to the notice of the TRAI.

 

He also asked whether the TRAI is aware that telcos are rampantly changing consumer’s tariff plan at the back end without their consent thereby charging high bills. 

 

Responding on this, Mr Prasad, the minister stated, "The telecom tariff order (TTO) issued by TRAI mandates that a tariff plan once offered by a service provider shall be available to a subscriber for a minimum period of six months from the date of enrolment of the subscriber to that tariff plan. The Telecom Tariff Order further provides that the subscriber shall be free to choose any other tariff plan even during the said six months’ period." 

 

On Tuesday, Vodafone Idea and Bharti Airtel have decided to increase tariff by as much as 50% for their pre-paid subscribers, while Reliance Jio has decided to increase tariff by 40% from 6th December. (Read: Jio, Airtel and Vodafone Idea To Hike Pre-paid Tariffs by over 40%; Try To Compensate Customers with Data, Other Services)

 

Vodafone Idea announced that the 'on-net' voice calls would be billed at six paise per minute. The 'on-net' voice calls after the provided FUP limit will be charged 6 paise per minute, similar to Reliance Jio. It is also providing bundled 'on-net' minutes, whereas Jio will be charging customers for IUC 'top-up' vouchers.

 

Interestingly, just last month, TRAI had floated a "Consultation Paper On Transparency in Publishing of Tariff Offers". The paper aims to empower end consumers by making available all relevant information to them and to eliminate the instances of adverse choices made by consumers due to lack of information, misleading information or due to difficulty in assessment or comparison of information. 

 

The paper says, "It has been observed that the service providers are offering various non-telecom services as a part of the bundled offering to the existing and prospective customers. Many complaints have been received regarding the charges being imposed on the customers after the free subscription period (if offered) of such service to customers is over. It has also been noted that there may be certain situations in which there may be conflict between the obligations of the service providers as regards tariffs and as regards bundled offerings."

 

This applies when a tariff plan from the telco offers a free subscription of certain service for a period exceeding six months and the service-provider proposes to change the tariff or discontinues the tariff plan after six months, the subscriber runs the risk of losing the remaining free subscription period if he does not agree to the revised tariff or exercise option to migrate to the plan offered.

On Monday, 2nd December, the market regulator, Securities and Exchange Board of India (SEBI) asked NSDL (National Stock Depository Ltd) to transfer investors’ shares that were pledged by Karvy Stock Brokers Limited (KSBL), back to their respective depository (demat) accounts. This is an excellent move at a time when there is hardly any good news for the average saver. KSBL, one of the largest market intermediary and brokerage firms, had helped itself to investors’ shares held in demat accounts opened with it and pledged them to borrow heavily. The loans were transferred to Karvy group entities, mainly to a realty company.  

 

Karvy has borrowed money from a clutch of banks and finance companies—Bajaj Finance, HDFC Bank, Axis Bank, ICICI Bank, IndusInd Bank and Kotak Mahindra Bank, among others. Bajaj Finance rushed to the Securities Appellate Tribunal (SAT) against the directive today. SAT has ordered a stay on any further transfer of shares back to clients (this could affect over 7,000 of Karvy’s clients) and directed the regulator to hear the lenders’ concerns by tomorrow and pass orders by 10th December. KSBL owes Rs345 crore to Bajaj Finance and it has already issued a loan-recall notice to the firm.

 

All this is along expected lines. Corporate India, with their battery of expensive lawyers, is good at ensuring that the justice system works efficiently for them by getting stay orders or interim orders or simply delaying proceedings. It is rarely that the regulator shows the wisdom to go back to basics and act in line with its core responsibility. But its quick action on Monday evening ensured that the scale of equity, for once, was tilted in favour of retail investors, not forcing them to run from pillar to post to salvage their investments. 

 

Under the preamble of the Securities & Exchange Board of India Act, SEBI is mandated with three principal objectives. Of these, the first is “To protect the interests of investors in securities”; the other two are to promote the development of the securities market and to regulate it. 

 

At a time when the regulator has been rapped for closing investor complaints without even examining them, it is good to see SEBI put the interests of a large number of retail investors first by ensuring that shares, that were illegally pledged by Karvy, were returned to investors’ demat accounts.

 

The practice, so far, has been different. In a slow and unequal justice delivery system, the disaggregated retail savers (depositors or investors) are always the losers. The big players and their expensive lawyers not only dictate policy but, often, can steamroller courts as well. SEBI’s action, this time, has reversed the process and protected the small investor, even as multiple other issues are contested and thrashed out in court. 

 

The money involved is enormous—over Rs2,013.77 crore—belonging to 82,559 investors. The remaining investors (of a total of approximately 90,000-95,000) would get their shares credited after paying what is due to KSBL. Simultaneously, SEBI escalated its action against KSBL by suspending its trading licence with immediate effect.

 

For the banks and corporates, who are crying foul, the money recoverable from Karvy is hopefully less than the value of shares pledged. Most of them would have multiple business relationships with C Parthasarathy, Karvy’s promoter-chairman, and his group entities; so their ability to enforce their rights and recover dues is significantly higher. 

 

 

On 22nd November, SEBI cracked down on KSBL with a hard-hitting, ex-parte, interim order barring it from taking on new clients or using the Power of Attorney (PoA) provided by its clients. The order stunned the market, but answered the complaints of thousands of investors who weren’t getting their money back from the firm. The action was based on a fairly detailed investigation by the National Stock Exchange (NSE) which, prima facie, established that KSBL illegally pledged clients’ shares to raise funds. 

 

It did this by hiding facts from the NSE and NSDL by failing to report certain DP (depository participant) accounts and crediting funds raised by pledging clients’ shares to its own bank accounts which were further transferred to a realty company. 

 

Without going into details of how this was done in a digital environment, in a physical world it would mean that KSBL violated the trust of its clients and stole their shares.

 

 

According to the market scuttlebutt, it appears that some investors may not have been entirely unaware of what was going on; but we will come to that later. Karvy’s initial reaction was, interestingly, defiant; probably because it got away unscathed in the IPO scam of 2006 after a SEBI order was set aside by SAT. 

 

When Greed Rules

Coming to investors, sources say that some investors themselves have created the possibility of being cheated by their broker-DPs by allowing their shares to be pledged and earn from them. 

 

They were told how idle shares lying in a demat account could be turned into a source of income, by lending them, especially to make margin payments. They hence allowed their shares to remain in the broker's pool account, to be pledged as a pool. This opens the door to the possibility of brokers misusing the shares. A former SEBI official points out that “this works well when the broker pays interest regularly and the investors have no complaints. However, when the interest stops, many of these investors feign ignorance and play innocent victims.” 

 

Unless they can show that Karvy fudged information and did not send them regular reports, such investors, driven by greed, may end up paying for their foolish and risky behaviour. SEBI also is aware of this practice and had tightened the rules in June, requiring a tri-partite agreement with investors. Those who were party to it would be a different category. The investigation would also show whether banks had done their due diligence and ensured that shares they had lent against were recorded with the depositories. And whether they had sought an undertaking from KSBL that the shares belonged to it and were unencumbered. 

 

However, the bulk of investors may, indeed, be innocent victims; they now have their investment protected and the ability to move their business elsewhere. The episode, however, raises serious questions that need to be addressed quickly. 

 

Are Broker DPs Safe?

A former executive director at SEBI points out that brokers were allowed to become DPs to provide a seamless system and a one-stop service to investors. In practice, though, it has been a constant battle for investors to protect themselves from being cheated by market intermediaries.

 

The first major battle was the misuse of the mandatory PoA that brokers insisted as a requirement for online trading. These used to give brokers sweeping rights to investors’ money and were, often, misused to decimate their investment. Moneylife was part of this long battle all through a decade ago, to clean up the system. 

 

Over time, SEBI has come up with stringent rules to restrict misuse and ensure that investors receive information and alerts through multiple channels about transactions in their account as well as investments. 

 

Brokers are also forced to transfer excess funds available with them back to the client account every quarter. In June, SEBI said that clients’ shares couldn’t be pledged to raise funds after the Allied Financial Services episode. According to Business Standard, another three-dozen brokers are under SEBI’s radar.  

 

And, yet, KSBL with over 234,000 customers, could indulge in such brazen and criminal misappropriation of assets of a large number of investors. This shows that circulars and rules that cast an increasing burden on investors to be forever vigilant are not the answer. 

 

After all, it is SEBI which is relentlessly forcing even long-term investors to dematerialise shares. It has also failed to provide appropriate infrastructure to those who wish to hold physical shares to be able to dematerialise/ rematerialise them as required. 

 

So, the onus of ensuring that shares in DP accounts are safe has to be with the regulator; its inability to keep up with the ingenuity of fraudsters cannot be at investors’ cost. In this context, SEBI’s decision to move quickly and credit shares back to investors’ accounts is a heartening move in the right direction. 

 

(This article has been updated on Wednesday 9.45 with a few additional details)