SEBI’s selective reaction

Regulators pretend all is well, in response to the most glaring violations we report

A few weeks ago, the Securities & Exchange Board of India (SEBI) decided to break its established practice of responding to the media only through its communications department and sent us an aggressive letter defending the actions it has taken to help investors of portfolio management schemes (PMS). The letter and our response have been published on our website. But it is the first time in nearly six years that SEBI has chosen to respond to an issue, that too in writing. Readers of Moneylife know that we have been fighting a two-year battle to force transparent disclosure of PMS performance. We filed an application under the Right to Information (RTI) Act, won an appeal to the central information commissioner and only then was the regulator forced to publish performance data of these schemes for high net-worth individuals. SEBI’s letter makes no mention of it, or of our pending appeal to put out more comprehensive information. However, it establishes that the regulator does read what Moneylife has been writing, fortnight after fortnight.

So what conclusions does one draw when SEBI does absolutely nothing about the brazen manipulation of stock prices that we have been reporting in our section called “Unquoted” for the past four years? Or, when it does nothing about the shenanigans of the McDonald’s franchisee, Westlife Development, whose share price is locked at the upper circuit with volumes of just one share on most days (the stock rose 220,000% without attracting any action from SEBI or the stock exchanges)? SEBI’s letter, more than anything else, is an indicator of the brazen lack of accountability of India’s independent regulators.

The parliament and its committees, which are supposed to act as natural checks & balances, do not go beyond cursory questions and have no time to examine the opaque answers. Meanwhile, the regulators are arming themselves with greater powers over people and companies which can be wielded with the same deadly effect as other investigation and enforcement agencies. SEBI is not alone in this attitude. The insurance regulator, conveniently located at Hyderabad, rarely responds to or engages with consumers.

Take this example. Moneylife’s Cover Story on how a barely literate retired railway ticket-checker, Arvind Injamuri, was a victim of shocking mis-selling by officials of Reliance Insurance. Some of the policies sold to him smacked of fraud and forgery. Yet, after our persistent follow-up, all IRDA (Insurance Regulatory Development Authority of India) did was to ask the company to cancel the policies and return the money with interest. The same Reliance Insurance has a corporate agent called AB Capital, which is enticing the gullible to buy insurance policies with the outrageous promise that they will receive interest-free loans of up to 10 times the premium. Moneylife Foundation’s insurance helpline has helped 15 people get back over Rs5 lakh. We have written to the regulator and also briefed him at a Mumbai seminar. No action or response.

The Reserve Bank of India (RBI) is far more open, but has no formal mechanism to engage with consumers. Even the chambers of commerce, whose collective financial muscle ought to give them some clout, only lobby the interests of powerful office-bearers. Consequently, new laws, with far-reaching implications for companies and for the national exchequer, have been hurriedly passed by parliament with perfunctory discussion. Educated, tax-paying savers need to start thinking about the long-term consequences of these issues.

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    Sudeep Sonawane

    7 years ago

    The article exposes the various regulators' inaction, transparency and questionable practices. Who will monitor the regulators?
    - Sudeep Sonawane


    7 years ago

    Looks like the Indian & US regulators suffer from the "OSTRICH SYNDROME".. Their turning a blind eye or behaving deaf, dumb and mute is not going to make the problem disappear.. They need a rude Wake Up Call!!


    7 years ago

    This case of regulators not paying any heed to the concerns of the consumer or the end customers is evident in most sections of B2C dealings. In WB, despite a fraudulent chit fund company called 'Saradha' going bust causing huge losses to lakhs of investors, no attempt has been made to clean up the system in WB, forget ridding the entire nation of such 'criminal' minds. Be it in the case of Robert Vadra or DLF or Mc Donald's, clout and muscle matter more than the call of justice even as India is emerging as a super power and wants to project itself as amongst the finest democracies in the world. The world's largest democracy trumped by a few dirty corners of corruption, that's tragic.

    SEBI notifies rules for angel investors
    The new norms would help in encouraging entrepreneurship in India by financing small start-ups at a stage where they find it difficult to obtain funds from traditional sources of funding such as banks or financial institutions
    Market regulator Securities and Exchange Board of India (SEBI) on Monday notified new norms for angel investors, who provide funding to companies at their initial stages. With the new norms, SEBI aims to encourage entrepreneurship in the country by financing small start-ups.
    Angel investors are allowed to be registered as alternative investment funds (AIFs) — a newly created class of pooled-in investment vehicles for real estate, private equity and hedge funds, a gazette notification said.
    In order to ensure investment by angel funds is genuine, the SEBI has restricted investment by such funds between Rs50 lakh and Rs5 crore.
    Among other norms included, angel funds can make investments only in those companies which are incorporated in India. These funds needs to be invested in a firm for at least three years, can invest in companies not older than 3 years.
    Further, investee company needs to be unlisted and with a maximum turnover of Rs25 crore and this firm may not be related to a group with a revenue of more than Rs300 crore.
    Angel funds are required to have a corpus of at least Rs10 crore and minimum investment by an investor should be Rs25 lakh.
    SEBI said, “The manager or sponsor shall have a continuing interest in the angel fund of not less than 2.5% of the corpus or Rs50 lakh, whichever is lesser, and such interest shall not be through the waiver of management fees”.
    The regulator also stipulated that the fund must not have any family connection with the investee company and that no angel fund scheme have more than 49 investors.
    In his budget speech, finance minister P Chidambaram had announced that SEBI would frame guidelines for angel investor pools by which they can be registered under AIF venture capital funds (VCF).
    Under SEBI guidelines, AIFs already have sub-categories such as Venture Capital Funds, Social Funds and SME Funds.
    Angel fund is likely to be a separate sub-category.
    Regarding raising of funds by an individual investor, the person need to have an experience of 10 years and should possess assets of at least Rs2 crore.
    In case an investor is a corporate entity, it need to either have a net worth of Rs10 crore or registered as AIF/ VCF with SEBI.
    Here are the salient features of angel fund norms...

    a. Angel Funds have been included in the definition of 'Venture Capital Funds' and a separate Chapter has been inserted specific to such funds. Angel funds shall raise funds only from angel investors. 
    b. In view of the high-risk investments of such funds, certain conditions have been imposed on investors. For instance, individual angel investors shall be required to have early stage investment experience/ experience as a serial entrepreneur/ be a senior management professional with 10 years’ experience. They shall also be required to have net tangible assets of at least Rs2 crore. Corporate angel investors shall be required to have Rs10 crore net worth or be a registered AIF/VCF.
    c. Angel Funds shall have a corpus of at least Rs10 crore (as against Rs20 crore for other AIFs) and minimum investment by an investor shall be Rs25 lakhs (may be accepted over a period of maximum three years) as against Rs1 crore for other AIFs. Further, the continuing interest by sponsor/manager in the Angel Fund shall be not less than 2.5% of the corpus or Rs. 50 lakhs, whichever is lesser.
    d. For ensuring investments are genuine angel investments, angel funds shall invest only in venture capital undertakings which are not more than three years old, have a turnover not exceeding Rs25 crore, are not promoted, sponsored or related to an Industrial Group whose group turnover is in excess of Rs300 crore, and have no family connection with the investors proposing to invest in the company. 
    e. Further, investment in an investee company by an angel fund shall be not less than Rs50 lakhs and more than Rs5 crore and shall be required to be held for a period of at least three years. 
  • User 

    FSLRC members handsomely “compensated” for their “contribution”

    In a response to a Moneylife RTI, the Ministry of Finance has revealed that Rs4.72 crore of taxpayer’s money was spent on the members of the Financial Sector Legislative Reforms Commission-FSLRC. It is time to standardise compensation norms of those who provide policymaking inputs

    A reply to Moneylife Right to Information (RTI) application revealed that the Financial Sector Legislative Reforms Commission (FSLRC) has spent at least Rs4.72 crore of taxpayer’s money since its inception in March 2011. It was also found out that some members were being paid huge amounts of taxpayer money for their “contributions”. For example, we found out that Justice (retd) BN Srikrishna, who used to be the judge for the Supreme Court and headed the FSLRC, was paid Rs40.53 lakh over three years for heading the Commission! 

    Moneylife filed an RTI to find out how much of taxpayers’ money went into the Commission since inception. Here is what how much FSLRC members were being paid since the Commission’s inception in March 2011.

    FSLRC Members

    Paid  (Rs in lakh)

    Justice (Retd) BN Srikrishna


    Justice (Retd) Debi Prasad Pal


    Dr PJ Nayak, ex-country head, Morgan Stanley


    KJ Udeshi, ex-Deputy Governor, RBI


    Yezdi H Malegam, practising accountant


    Jayanth R Varma, academic


    M Govinda Rao, academic


    Late C Achuthan, ex-jusrist


    Dhirendra Swarup, formerly ministry of finance


    CKG Nair, Secretary, FSLRC


    Bobby Parikh, Managing Partner, BMR & Associates


    Raj Shekhar Rao, Advocate


    Somasekhar Sundaresan, Advocate



    The remuneration, fees and compensation is just one part of the expense paid to these members. We also found out that the FSLRC spent huge amounts of money on ferrying members to and forth, feeding and providing them with food/accommodation, reimbursement of office expenses and conveyance and “other assorted expenses” (whatever this means). The table below shows how much were spent on each of these expense heads, for each member of the FSLRC and its various working group committees, since March 2011:

    Expenses Head

    Total (Rs in lakh)



    Food and Accommodation


    Office expenses and conveyance


    Other assorted expenses



    Some of the members of the FSLRC are very well positioned in the commercial world and earning fat compensation or fees. For example, Dr PJ Nayak was the country head of Morgan Stanley at the time of his being appointed to FSLRC. This is a coveted position in a global firm, which would have fetched crores in compensation for Dr Nayak, a former bureaucrat. Yet, he had no problem in picking up a sizeable amount (Rs20 lakh) for his “services” to FSLRC. Another member, Jayant Varma, a well-known professor of Indian Institute of Management Ahmedabad-IIM-A (also, partly a taxpayer-funded institute), also got Rs20 lakh. Three others are part of flourishing professional-services firms.

    While these handpicked “thought leaders” probably deserved to be compensated for their contribution to policy making, even though the report may only gather dust, our RTI application also revealed that there was no compensation policy in place. Other well-known personalities like Aditya Puri, Ravi Narain, Janmejeya Sinha and Naina Lal Kidwai were paid nothing for their work as members of working groups. In fact, members of the Working Groups of FSLRC were not paid at all.

    Indeed, there is no standardisation on how these committees are formed and how much members should be paid, if at all, for a service, which is not commercial and in the nature of public service. For instance, while this was a Commission, which had a very wide canvas in trying to suggest sweeping legislative changes, there have been many important committees set up by various regulators where members were paid nothing for their public service. Members of SEBI’s Advisory Committees (primary market, secondary market and mutual funds) are not paid anything either. Until now, members to these committees saw some honour and prestige in serving as members. Many from the industry also saw this as a tool to network and further their business interests. Now, they can expect direct fat compensation as well, apart from indirectly exploiting their public-service role.

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    Deepak Gupta

    7 years ago

    The time duration for which the compensation was paid, is mentioned only for Justice Srikrishna. It is mentioned as 3 years. So, 40Lacs comes to just about 13Lac per year.

    For a person of his eminence and experience, that is hardly a pay that anyone will complain about.

    The real problem here is the absence of clear guidelines for such appointments. This may create room for misuse in the future, and should be taken care of.

    That four members of the commission have written dissent notes - how is that relevant to the compensation paid to them? I'm sure you are not suggesting that people should not not dissent (so, leave their honest opinions behind and become yes men) only because they are being paid for their time?

    Vinay Shah

    7 years ago

    The entire report is the brain-child of Ajay Shah. It is he alone who had laboriously drafted the report. What was the compensation received by him?


    7 years ago

    In the history of independent India FSLRC was probably the 2nd largest undertaking in writing new laws. This was an immense project with had a dedicated research team working full time for 2 years. How can you question their compensation?

    What you should be questioning is why the report is 'gathering dust' after so much money being spent. Not why this money was spent to begin with.


    Sucheta Dalal

    In Reply to Parikshit 7 years ago

    Yes we can question their compensation. Many who have drawn lakhs of rupees hold full time jobs, where their annual earnings are in crores.
    On the other hand many of us have served on innumerable committees where even our conveyance is not paid.
    We need to know the basis on which these decisions are made. The basis on which consultants and lawyers are selected and who they decided to engage with and who they leave out.
    The biggest surprise is this -- the four key members of the FSLRC have written dissent notes. What on earth kind of report is this? Who dictated the final report? Who dominated it so much that industry leaders were reduced to writing separate dissents?
    There is a lot about the FSLRC that is not transparent and we would like to know what really happened during the deliberations.

    G A Joseph

    7 years ago

    This report raises one ominous question. Is there not even one big man in our country who is willing to do something for the nation after retiring from high positions. If their rise to top positions has only add to their greed for money and they continue to seek more money after retirement selling their opinions, it is high time that post retirement engagements be made on honorary basis so that persons with social commitment and love for the country and its institutions come forward to provide guidance. Else let serving officials form committees and prepare policy documents. One is at a loss to understand what precious thing retirement adds to the wisdom and knowledge of these people that the society pays so heavy a price for this immeasurable commodity.

    nagesh kini

    7 years ago

    Great report Aditya!
    Pray what is the fate of the ground level implementation of this report? The MOF ought to come clean more particularly on the dissents.
    While reimbursement of the actual out-of-pocket expenses is OK as also the travel and stay what is the criterion for the fat remuneration?
    Most of the inputs will have come from the equally distinguised members of the working groups but they get nothing?


    MG Warrier

    In Reply to nagesh kini 7 years ago

    Nagesh Kini

    Your concern about dissent is shared by many. In my article on FSLRC published by, I observed:
    It would appear that the Commission did not get opportunity to understand the present relationship between the RBI and GOI. The regulatory apparatus plus legislations in financial sector in India are in working condition. The FSLRC’s effort to re-invent them has already pushed the present regulators and supervisors to a confused state.

    P J Nayak, inter alia observed in his dissenting note asunder:
    “The Commission now arrests and partly reverses this directional movement, and it is with apprehension that one must view the very substantial statutory powers recommended to be moved from the regulators (primarily RBI) to the finance ministry and to a statutory FSDC, the latter being chaired by the finance minister. The Commission has recommended that direct statutory powers be vested in the government in matters of (i) Capital Controls and (ii) Development. The statutory empowerment of the FSDC encompasses (iii) Inter-Regulatory Co-Ordination; (iv) Identification and Monitoring of SIFIs; and (v) Crisis Management. This transfer of powers collectively constitutes a profound shift in the exercise of regulatory powers away from (primarily) RBI to the finance ministry. The finance ministry thereby becomes a new dominant regulator.

    “To rearrange the regulatory architecture in this manner, requiring new institution-building while emasculating the existing tradition of regulators working independently of the government, appears unwise. There is no convincing evidence which confirms that regulatory agencies have under performed on account of their very distance from the government; indeed, many would argue that this distance is desirable and has helped to bring skills (and a fluctuating level of independence) into financial regulation.”

    No point in doing an MRI of FSLRC report or the dissenting notes. Application of “collective wisdom” is conspicuous by the absence in the whole affair. Some vested interests are itching for a truncated central bank with diminished role with no say in the non-bank financial sector, the government securities market and the foreign exchange market. This implies that the RBI would have no say in the management of the exchange rate and thereby in the forex reserves. Add to this the Commission’s view on government debt management. The Commission opts for a separate Debt Management Office (DMO), totally separated from the RBI, which is the dispensation North Block has been trying to push and RBI has been resisting for valid reasons for a long time now.


    7 years ago

    has there been a change in govt rules in, certain cases, that
    it is allowed to function like companies-where 'sanction by appropriate person' is more important than the 'propriety aspect' ?

    MG Warrier

    7 years ago

    Transparent norms for compensation packages, where public funds are involved (Here no need to get confused about the meaning of public funds- Organisations dependent on funds from public, whether as tax or as share capital contribution are all handling public funds and have only ‘Trusteeship’ rights on the resporces) need to be evolved. Thank you Moneylife for exposing the absence of any norm in this area.

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