A hard-hitting confidential letter from UK Sinha, SEBI chairman, once more proves the seamy underbelly of the regulator under former chief CB Bhave. Moneylife alone has been reporting about this seamy side for two years now

Barely four months into his job, UK Sinha was delivered a blow that could have given us a second consecutive lame-duck chairman at the Securities and Exchange Board of India (SEBI). In a bizarre move, Dr KM Abraham, the highly controversial former Whole Time Director at SEBI wrote a letter to the Prime Minister accusing the Income-Tax Department of harassing him, over the purchase of an apartment in Mumbai (we will come to the details later). He also accused Finance Ministry officials of interference in his work-"with the knowledge of Finance Minister Pranab Mukherjee". And now, it turns out, that his sharpest and most specific allegations were reserved for UK Sinha, his new boss, for interfering in several high-profile cases! Was the last move a deliberate and well-planned strategy by some interested sections to maim Mr Sinha from the very start?

Mr Sinha has reacted with an equally hard-hitting letter, which Moneylife has reviewed. The letter exposes several of the murky goings-on during the past three years under CB Bhave, whose ally in the process were two key members of SEBI. Remember, during that period, Mr Bhave has always positioned himself as a champion of the small investor and a crusader against corporate malpractices. Moneylife alone has been reporting with persistence the real murky practices inside SEBI.

Curiously, only select parts of the Sinha letters have been released to the media so far, although the reporters claim to have perused them. Moneylife now has access to UK Sinha's 13-page letter but not the one written by Dr KM Abraham to the Prime Minister. However, the allegations that Dr Abraham makes are clear from the SEBI Chairman's response.

The first six pages of Mr Sinha's letter are a long account of how he works, the effort he has made to understand SEBI's functioning and the fact that he consults executives at all levels and seeks formal briefing notes before making important decisions or meeting people. He then proceeds to address specific allegations made by Dr Abraham about Sinha's interference in several high-profile cases. One, the SEBI board's decision to declare three orders by a two-member bench against the National Securities Depository Limited (NSDL) as non-est or void. Two, the order against the Sahara group's debentures and Reliance Industries' attempt to file consent proceedings. Three, the rejection of MCX-SX's application to set up a stock exchange. Four, the Bank of Rajasthan case and finally, refusing to give Dr Abraham a job in Mumbai as director of the National Institute of Securities Markets (NISM) by bending the rules.

The letter is probably the first recorded case where wild and sweeping allegations would have been made against a new SEBI chairman in less than three months of taking charge. It is all the more surprising, since Dr Abraham, an IAS officer (like UK Sinha) from the Kerala cadre and a doctorate from the University of Michigan, didn't quite set the capital market ablaze with path-breaking moves or regulatory orders during his three-year tenure.

Instead, he was seen as a zealous yes-man of the former chairman. So, what are his motives? In fact, his allegations suggest a desperate attempt to prevent a reversal of two crucial orders involving NSDL and MCX-SX while the remaining issues are only to provide the appearance of a broader problem. Newspaper Mint claims that the Central Vigilance Commission (CVC) now plans to probe Dr Abraham's letter. This will give an interesting twist to the SEBI saga, because if CVC looks at SEBI, it will hit a goldmine of favoured and twisted decisions that stink. For starters, it can check about how punishments and penalties were decided in the past three years and then compare it to Mr Sinha's four-month stint. To come back to Mr Sinha's replies to Dr Abraham's allegations, here are some facts he points out in his letter.

MCX-SX case: This case is before the Bombay High Court after Dr Abraham rejected MCX-SX's stock exchange application under the "fit and proper" person criteria. Mr Sinha's letter points out that in this case, MCX-SX has alleged under oath "bias in the mind of Dr Abraham" and also complained about him to the CVC. (Indeed, apartments acquired by SEBI Members, Dr Abraham and MS Sahoo, in the very same Kohinoor City Complex in which the National Stock Exchange acquired 80,000 sq feet of space and flats for senior executives has been reported to the CVC. UK Sinha had given the two Members a clean-chit in this regard). According to Mr Sinha's letter, Dr Abraham apparently alleged that SEBI's position has been "compromised in this matter". His main grouse seems to be that the Chairman asked to see the affidavit that was filed in court. Mr Sinha calls the allegation "completely misconceived, false and not borne out by facts". Indeed, recent developments in the case, do suggest that SEBI strongly backs its order against MCX-SX. But that is probably what Dr Abraham's letter intended to achieve.

NSDL case: According to Mr Sinha, Dr Abraham pushed hard to ensure that SEBI does not reverse its stand in the NSDL matter, where two orders of a board bench were declared non-est or void. Mr Sinha says, Dr Abraham was unhappy about it. "My advice to him was that in the face of strong direction from the Hon'ble Supreme Court and the advice received from the SEBI Counsel, it would not be in SEBI's interest or in public interest to do so".

Sahara: In this case, the allegation is that Mr Sinha "discouraged" Dr Abraham from issuing a public notice about the fact that the stay on SEBI's order was vacated by the Lucknow bench of the Allahabad High Court. Mr Sinha dismisses it as a "figment of imagination" and clearly, there is no public perception about any softening of SEBI's stand.

Reliance Industries/ADAG case: Dr Abraham seems upset that Mr Sinha took interest in this case and discussed "the background of how and in what manner the settlement amount (of Rs50 crore in the Anil Dhirubhai Ambani Group case) was arrived at. He points out that the file had remained with Dr Abraham and no decision was taken on the matter until he demitted office.

Bank of Rajasthan: This pertains to the listing of Bank of Rajasthan shares after a lawsuit by ICICI Bank was withdrawn. It is not clear how Sinha is alleged to have tried to influence this decision. Mr Sinha encloses a note by Dr Abraham to establish that permission to list was in fact granted by the Member himself.