The ring-fence, which was to keep SEBI chairman CB Bhave away from the controversy over the charges against National Securities Depository Limited (NSDL), has clearly collapsed. V Narayan Reddy, an investor, has filed a public interest litigation (PIL) in the Andhra Pradesh High Court asking for SEBI to be directed to publish a committee report that has been suppressed since its submission on 4 December 2008. The two-member Committee, comprising Dr Mohan Gopal (head of the National Judicial Academy) and V Leeladhar (former deputy governor, Reserve Bank of India) was to examine the various charges levelled by the regulator against NSDL in connection with the IPO (initial public offerings) scam in 2006, when NSDL was headed by Mr Bhave. The petition indicates that the report may have indicted SEBI as well as NSDL for failure to protect investors. In NSDL’s case, it has apparently affirmed a SEBI order on certain counts such as failure to perform its supervisory role, conduct proper inspections of depository participants (DPs) and failure to penalise prior violations by DPs.
Since the two-member committee apparently did not give NSDL a clean chit, as was widely expected, the ring-fence, a brainchild of the finance ministry, clearly failed to protect the office of the chairman. This triggered a series of machinations to keep the report suppressed. For starters, board members, especially the whole-time members, who report directly to the chairman and depend on his approval for their job extensions and foreign trips, tried to stridently discredit the report. This violated the SEBI board’s resolution on conflict of interest, which, say sources, specifies that neither the SEBI chairman nor the whole-time members can participate in discussions on this issue. Last heard, the board, led by the whole-time members, had sought a legal opinion from a former chairman of the Securities Appellate Tribunal (SAT) to justify the continued suppression of the report. This opinion too does not seem to have been placed before the board. The PIL came up before a Bench comprising chief justice Anil Dave and CV Nagarjuna Reddy; the Court has issued a notice to the regulator and posted the matter for hearing on 13 October 2009. We learn that SEBI has requested the attorney general of India to represent it.