What will SEBI decide today?

Sucheta Dalal 22 December 2009

The directors of the Securities and Exchange Board of India (SEBI) will meet under the chairmanship of Mohandas Pai (director of Infosys Technologies Ltd) to decide on the National Securities Depository Ltd (NSDL) issue after its controversial decision to declare two orders of the Mohan Gopal-V Leeladhar (both SEBI board members) committee as void or 'non est'.

All these manoeuvres are to protect SEBI chairman CB Bhave, who used to head the NSDL and has adopted the posture that the depository is virtually beyond criticism. When Mr Bhave took over as SEBI chairman, the finance ministry devised a ‘ring fence’ to shield him from the punitive action against NSDL that was initiated in the aftermath of the IPO scam of 2006 (where some investor cornered a big chunk of shares reserved for retail investors by using trickery to file multiple applications). The NSDL was accused of failing to detect tens of thousands of multiple applications even when the scamsters brazenly consolidated them into seven or eight accounts prior to issue opening.

It may be recalled that SEBI had suppressed the orders of the Gopal-Leeladhar committee for almost a year and made them public only after a public interest litigation was filed in the Andhra Pradesh High Court forcing their disclosure. Even then, the board decided to declare the orders 'non est' on the rather dubious excuse that the committee had exceeded its powers by criticising SEBI itself. It then decided to hear the NSDL issue afresh and 'dispose of the case'. It is largely believed that the SEBI board will give NSDL a clean chit.

This view has since been criticised by Justice JS Verma, former Chief Justice of the Supreme Court of India. Justice Verma had opined that "the recent decision (of the) SEBI board to review and declare as ‘non-est’ two quasi judicial orders of SEBI violates established legal and Constitutional principles. These quasi judicial orders may be reviewed only by a judicial forum with requisite jurisdiction, at the instance of a petitioner with standing to seek relief."

When the SEBI board meets today under Mohandas Pai's leadership, it will have to discuss Justice Verma's opinion, while earlier, it has acted on an opinion by C Achuthan, former presiding officer of the Securities Appellate Tribunal (SAT). Opinion among legal circles as well as the capital market is that Justice Verma's reputation and the succinct views in his opinion carry far more weight. The question is: Will the SEBI board ignore all this?

There is also another issue about Mr Achuthan's opinion that will have to be considered by the board. The SEBI committee which obtained Mr Achuthan's opinion, had omitted to take into account that he is a director of the National Stock Exchange (NSE). More pertinently, his firm has represented the registrar Karvy and several other firms indicted by SEBI in the IPO scam. There is a strong view that this represents a conflict of interest that was not openly disclosed to the board by SEBI officials who are working overtime to protect Mr Bhave or follow his diktat.

There is also an opinion among legal circles that the entire SEBI board cannot act as a quasi-judicial body to decide matters that are controversial.

It now remains to be seen if the SEBI board, which includes representatives of the finance ministry, ministry of company affairs as well as the Reserve Bank of India decide to brazen it out and dispose of the NSDL issue under Mohandas Pai's chairmanship.

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