Regime change at SEBI forces NSE to compromise

Without the SEBI top team to bat for it, NSE is quickly compromising on a variety of court battles

After three years of aggressive high-handedness, the National Stock Exchange (NSE), which has a virtual monopoly over India's capital markets, filed consent terms that closed a slew of lawsuits.

While the media has reported the end of the war, two important facts have escaped public attention. First, the NSE has also pushed to close a 2009 case filed by A Sebastin, a former NSE employee, whom the bourse had humiliated with a public notice, mainly because he had joined the rival MCX. Mr Sebastin had resigned from NSE in October 2008. 

This was the ad published by NSE in various business newspapers about A Sebastin.

The NSE had chosen to deny a formal resignation and handover by Mr Sebastin and issued him a termination letter instead. It withheld his dues, including his provident fund and gratuity and further humiliated him by publishing his photograph in various newspapers to falsely suggest moral turpitude on his part. Worse, the NSE sought to quash Mr Sebastin's case, all the way to the Supreme Court, but was defeated at all levels. The case was referred back to the labour court for detailed hearing after NSE failed to quash it at the High Court and Supreme Court. The case had the potential of personally embarrassing NSE Managing Director Ravi Narain and his deputy Chitra Ramakrishna.

Our sources tell us that a crucial part of the deal with MCX was a request to persuade Mr Sebastin to drop the case without embarrassing senior NSE officials in court. The NSE in turn agreed to withdraw its wrong termination letter and to pay all of Mr Sebastin's dues which, in 2008, had added up to Rs32.50 lakh. The professionally-run exchange suffixed by the word 'National' spent considerably more in humiliating Mr Sebastin and in defending its action in court.

Interestingly, part of the agreement with the MCX Group and Mr Sebastin is that they will not speak to the media. As a result, neither NSE nor MCX was willing to speak on the issue. Mr Sebastin, who has been transferred to Chennai as the business development head of MCX, also did not want to go into details other than confirming the fact of an agreement signed with NSE. He also did not want to discuss why he did not press for an apology from the NSE for defaming him when it was the main reason why he dragged the exchange to court. Our sources say that Mr Sebastin may not have had a choice, because having him drop the cases against Mr Narain and Ms Ramakrishna were key to the consent terms filed with MCX-FT group on the broker front-office software and other matters. In effect, Mr Sebastin was "persuaded" to accept a settlement that merely paid his dues even though he was on a very strong wicket after the Bombay High Court passed strictures against the NSE officials.

A top source connected with the NSE told us, "I hope this works. Everyone concerned will need to stick to the commitments made. Equally they should not be tempted to go to the press." However, details of some aspects of the deal were already in the newspapers by then.

The real question is, why was the rich and powerful NSE, which for three years had dragged every real and imagined challenge to its supremacy to court, in such a hurry to close and bury multiple litigations?

One reason could be plain prudence. NSE couldn't have risked embarrassing losses in any more lawsuits after several reverses. It had lost the fight over being subject to the Right to Information (RTI) Act before the Central Information Commission and the Delhi High Court. It has now appealed to the Divisional bench. It lost to the forex derivatives bourse, MCX-SX, on the predatory pricing issue filed before the Competition Commission of India, which has imposed a Rs55.50 crore penalty on the NSE after finding it guilty of abusing its dominant market position. It has already faced several reverses and strictures in the case filed by Mr Sebastin over his wrongful termination and humiliation. The Bombay High Court case filed by Financial Technologies after NSE red-flagged its broker-trading software (ODIN) with an 80% market share was also looking shaky for NSE, say law experts.  

But NSE had suffered many of these reverses many months ago. What caused the haughty and bullying exchange to compromise? Small fact: there is a new chief at the Securities and Exchange Board of India (SEBI). Under the former chairman CB Bhave, SEBI had chosen to abdicate its responsibility of deciding all these issues and allowed MCX, Financial Technologies and Mr Sebastin to seek civil and criminal remedies. With Bhave and his buddy-group of two whole time directors (KM Abraham and MS Sahoo) and key Executive Directors heading the legal department and Secondary Markets (JN Gupta) in charge of the regulatory body, the NSE had nothing to worry about. But SEBI has a new chairman now. The change in regime at SEBI means that this support is no longer assured and the NSE has reacted swiftly, by quickly closing all cases. Here again, its monopoly status was a major advantage. After all, the other party to the suit was only battling it out in court to stay in business or, as in the case of Mr Sebastin, an employee fighting for his honour and financial dues.

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Nagesh KiniFCA
1 decade ago
Just because they have the funds, the public funds at that, NSE and others should be questioned for pursuing frivilous and vindictive persecution of employees.Whether the parties like it or not, thru RTI such litigations that resulting in waste of public funds to harass employees need to be put an end to, sooner the better.
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