SEBI Chairman’s appointment: buck stops at the PM

An accusatory letter by a Whole Time Member, an unusual writ petition by some eminent citizens, an explosive rebuttal by the finance ministry and the buck of senior appointments at the capital market watchdog again stops at the Prime Minister

At the end of the day, it may boil down to an outgoing director’s pique at not getting a two-year extension at the Securities & Exchange Board of India (SEBI) or a well-paid-perked directorship at its National Institute of Securities Management (NISM). SEBI’s director K M Abraham’s letter to the Prime Minister (PM) hurling a slew of stunning allegations at the new incumbent, Mr U K Sinha and Finance Minister Pranab Mukherjee has caused a heap of dirty linen to spill into the media. This will hopefully have the salutary effect of a much needed clean up of an extraordinarily arbitrary, high-handed and increasingly corrupt regulatory body. But an unintended consequence of the many rivalries is that it again exposes the failure of Prime Minister Manmohan Singh.

Clearly, a well-orchestrated plan has gone awry; but those of us who follow the news closely can now see a clear pattern.
* It started with a series of reports about how and why Chairman C B Bhave and his two whole time directors did not get a five-year term as had been proposed and put on hold over a year earlier. These reports appeared despite the fact that U K Sinha’s appointment as SEBI chairman had already been announced. Those of us who track SEBI regularly, knew that a five-year term for Mr Bhave and the directors had been mooted within months after their 3-year appointment but had been put on hold by the Finance Minister long before their term ended. Why then did it make news when it was no longer relevant?
* Soon after, media reports selectively carried portions of K M Abraham’s letter to the Prime Minister (PM). He portrayed himself as a whistle blower and alleged that Chairman U K Sinha, under pressure from Finance Minister (FM) Pranab Mukherjee was diluting SEBI action in four specific cases. Strangely, the full letter was made public only on 28th October by First Post which obtained it through an RTI filing. (
* Moneylife then scooped U K Sinha’s rejoinder to Abraham’s charges, which showed there had been no dilution in SEBI’s stance in the four named cases even the allegations of political pressure were true. Sinha also alleged that Mr Abraham was mentally disturbed, in the habit of secretly taping people and had repeatedly sought an appointment in NISM which was apparently assured to him by Mr Bhave.
* Next, the media reported another letter from Dr K M Abraham to the PM, where he claimed that he and his family were under threat because the PM’s office had forwarded his letter to the Finance Minister, who was the prime subject of his complaint.

* In the meantime, a group of eminent citizens have filed a public interest litigation alleging that the constitution of the search committee for appointing the chairman and directors was altered to give the finance minister more say on the selection. Since the case is sub-judice, we are reproducing the writ petition and the affidavit verbatim.

Moneylife has pointed out that the recommendation of the appointment committee has been frequently ignored in selecting the SEBI chairman. ( We pointed out that even C B Bhave was not on the list forwarded by the committee. Worse, he was appointed despite an on-going litigation by the National Securities Depository Limited (NSDL) which he founded and headed for over a decade, with SEBI. All this has now been reiterated by the Times Group on 13th and 14th November.  In fact, the then Joint Secretary K P Krishnan called senior journalists to explain how Bhave would be  “ring-fenced” from NSDL related issues. The fact that the ring-fence did not work and all NSDL’s wrongs were sought to be buried have been extensively reported. Media reports now reveal that P Chidambaram pushed for Mr Bhave’s appointment even when he had told the selection committee that he was not interested in the job. In fact, Mr Bhave had taken the unusual step of appearing before the selection committee, despite not wanting the job, only to be able to air his grievances against then SEBI Chairman M Damodaran, who had initiated action against NSDL in the IPO (Initial Public Offering) case of 2006 and appointed a two-member bench of the SEBI board (comprising Dr Mohan Gopal and V Leeladhar) to look into the issue. The negative findings of the bench were first sought to be buried by SEBI and later declared null and void until the displeasure of the Supreme Court forced a volte face. 

Now we come to the interesting part of the new PIL. The writ filed by eminent citizens says that orders to extend the term of C B Bhave and the two whole time members from three to five years was “reviewed and negated” and the rules for the composition of the selection committee were amended to give more powers to the FM. Anyone who has followed SEBI closely (unlike the petitioners in this case) is in fact rather shocked and surprised at the quiet and surreptitious move to extend the term of the chairman and his two whole time members through the petition.
What if the apex court goes into issues that the eminent citizens have ignored? For instance, who proposed the move to grant this extension? Wasn’t it the same finance minister (P Chidambaram) and Joint Secretary (Dr K P Krishnan) who stood by and allowed SEBI to throw out an order of its own bench in the NSDL matter? Wasn’t this the same finance ministry team which stood by and allowed Dr Mohan Gopal to be so humiliated that he did not attend any SEBI board meeting towards the end of his tenure?
Or, what action was taken by the government and the finance ministry on the explosive and anguished letter to the PM by Dr Mohan Gopal (who headed the National Judicial Academy and has taught at Harvard Law School for over a decade before returning to India) about capricious functioning of SEBI under Mr Bhave (é-of-sebis-functioning-under-bhave/16246.html).

Since the buck stops at the PM, it could well be that these issues are not likely to be raised before the apex court. But if they are, a few surprising skeletons could tumble out and expose the many machinations and vested interests at work behind the scenes.

1 decade ago
It's delusional for Ms. Dalal to keep grinding an axe time in and again, trying to justify what the FM does. NDSL & the IPO scam is not the issue here. The issue is indeed if the current management in SEBI is going slow on RIL, BoR, Sahara and the likes. For the moment, it looks like no action worthwhile has taken place that will cause for the guilty to be labeled so punished appropriately. That's what the complain is all about and not the diversion that's attempted here.
Dr Vaibhav G Dhoka
1 decade ago
In this scam era most of the originate from PM's failure to take FIRM stand.He himself admits all his failure to COALITION DHARMA. It is pitiful condition for our nation and in this particular case of SEBI it is pitiful to whole investor community but cheers for brokers and other market intermediaries.Due to corrupt SEBI What is left for INVESTORS is just a GUESS.
1 decade ago
Regardless of the way the selection was done, seems like sinha is more likely to succumb to govt & corporate pressure. bhave had a good reputation in this regard
Replied to Anisha comment 1 decade ago
Clearly, you have neither been following anything abut Bhave nor have you understood anything about Bhave mentioned in this article, assuming you have read it
Replied to madhur comment 1 decade ago
Every time there is an adverse comment on U K Sinha or a favourable comment on C B Bhave, the Moneylife digital team comes with a comment against the reader. The publication is clearly following an agenda of certain people and is in no way free and fair.
Replied to Abhinav comment 1 decade ago
Can we say the same for you Abhinav alias Himanshu? Why are you posting comments with different names. Why not use your real name and email ID. Let others also know who is following who?
BTW: We captured your IP and keeping a tab on it.
mitul Desai
1 decade ago
Dear Group of eminent citizens who have filed a public interest litigation challenging appointment of U K Sinha,
Divert your energy in fighting corruption instead of wasting time and getting publicity.
Krishnaraj Rao
1 decade ago
Ah! The cozy relationship between Pranab Mukherjee and Omita Paul again raises its ugly little head -- this time in SEBI. And Prime Minister is silent as usual.

Good reporting, guys!

Madhusudan Thakkar
1 decade ago
This incident clearly proves that MMS is one of the weakest PM our country has ever seen.On the issue of PM's inclusion under the ambit of Lok Pal MMS had said that personally he would like himself to included but his cabinet colleagues are opposed. Now we know these cabinet ministers.In today's TOI also there is an detailed account how Chidambaram had final say in the appointment of Bhave as SEBI chief.According to Dr.Swamy Chidu is one of the most corrupt politician of Congress party with substantial exposure in stock market[How can we forget Fairfax ] and had vested interests in appointment of Bhave .The rivalry between Chidu & Pranab Mukherjee is very deep.The so-called truce is temporary.Looking forward to in depth investigation from MoneyLife team
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