SEBI meeting on NSDL issue 'inconclusive'   

December 23, 2009

The Securities and Exchange Board of India (SEBI) Board, which met on Tuesday to discuss the alleged failure of National Securities Depository Ltd (NSDL) in preventing the initial public offer (IPO) scam during 2003-05, did not take any decision.

"The Board on Tuesday heard the NSDL matter but no final decision was taken; that will take some time," a source close to the development told PTI.

SEBI chairman CB Bhave, who was heading NSDL during the period of the alleged scam, did not attend the session which was chaired by Mohandas Pai. The NSDL keeps records of equity transactions and demat accounts. Mr Bhave later succeeded M Damodaran as SEBI chief in February 2008.

The IPO scam case refers to SEBI's investigations into 21 IPOs that hit the market between 2003 and 2005. SEBI's probe revealed that shares reserved for retail investors were illegally acquired by various entities through tens of thousands of fake demat accounts and fictitious applications.

A two-member bench was constituted after Mr Bhave took over as SEBI chairman. The bench comprising G Mohan Gopal (director of National Judicial Academy) and former RBI deputy governor V Leeladhar had passed an order against NSDL, directing it to carry out an independent enquiry to establish individual accountability for the failures of NSDL in the IPO scam.

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 was 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."

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