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. (http://www.firstpost.com/business/pranab-pressured-sebi-to-go-easy-on-ril-save-rs-1500-cr-118531.html)
* 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. (http://www.moneylife.in/article/regulation-appointments-disappointments/20543.html). 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 (http://www.moneylife.in/article/dr-mohan-gopals-explosive-exposé-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.