Sucheta Dalal :What will SEBI decide finally on the NSDL issue?
Sucheta Dalal

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What will SEBI decide finally on the NSDL issue?  

January 29, 2010

Securities market regulator, the Securities and Exchange Board of India (SEBI), is scheduled to hold a board meeting on 2 February 2010 to discuss and take a final call on the alleged failure of National Securities Depository Ltd (NSDL) in preventing the initial public offer (IPO) scam during 2003-2005.

The IPO scam case refers to SEBI's investigations into several 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 CB 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.

This was followed by a one-year effort to bury the orders of the two-member bench. Finally, under pressure from a public interest litigation filed in the Andhra Pradesh High Court, the SEBI board met and was forced to release the three orders of the Bench into the public domain; but the Board sought to kill the application by declaring that two of the orders as void or 'non est' since the Bench had gone beyond its brief in criticising the regulator itself.

Dr Gopal had objected to this action taken by SEBI. His reservations were echoed by Justice J S Verma, former Chief Justice of India, who declared that such quasi-judicial orders can only be reviewed and quashed “by a judicial forum with requisite jurisdiction, at the instance of a petitioner with standing to seek relief.”

It is reliably learnt that this opinion of Justice Verma was formally put before the SEBI board, at the regulator’s board meeting which was headed by Mohandas Pai on 22 December 2009.

The SEBI board had also sought the legal opinion of Mr C Achuthan, former Securities and Appellate Tribunal (SAT) presiding officer, in relation to this matter. Dr Gopal had officially pointed out that Mr Achuthan was conflicted because he had represented one of the IPO accused (Karvy) in a matter before the Andhra Pradesh High Court. Mr Achuthan is also a director on the NSE board, a SEBI-regulated entity, which is the promoter and major shareholder of NSDL.

There is also a strong view that SEBI officials are working overtime to protect Mr Bhave from courting controversy, by delaying the proceedings relating to this case.

It remains to be seen if SEBI goes ahead and exonerates NSDL entirely and rejects the two-member bench's order. 
 Moneylife Digital Team


-- Sucheta Dalal