Sebi I Investigation: SAT pulls Up SEBI for 12-year delay  

August 10, 2012

If cases relating to important scams can languish for 12 years, isn’t it proof that SEBI has failed its basic mandate?

Sucheta Dalal

At the end of July, the Securities Appellate Tribunal (SAT) let off the brokerage firm Subhkam Securities Pvt Ltd in a case pertaining to trading in the shares of Mascon Global Limited, acting on behalf of entities connected with Ketan Parekh. The trades happened sometime between August 1999 and March 2000—in effect, 12 years ago. Strangely, the show-cause notice alleging synchronised trading and nexus between its clients was issued in 2008—eight years later. In July 2009, Subhkam’s registration certificate was to be suspended for two weeks, but the company chose to send in a denial only 20 months later in April 2011. In March 2012, SEBI’s whole-time member considered the issue and dropped the allegation of a nexus but upheld the charge of synchronised trading. Subhkam got itself a smart lawyer and approached the Securities Appellate Tribunal (SAT), which dismissed all charges against it. SAT also pulled up SEBI for the 12-year delay in investigating market manipulation. It pointed out that such a long delay allows guilty operators to continue with impunity and innocent ones to have a Damocles’ sword hanging over them. The SAT order ends with ‘the hope’ that the SEBI board will take steps to ensure that inquiry proceedings are conducted in a time-bound manner.

We think the order raises several issues that need an independent inquiry. Consider this. The case pertains to Ketan Parekh’s alleged transactions, where a joint parliamentary committee (JPC) was appointed to look into the issue and an action taken report is submitted to Parliament by the finance ministry every quarter. Yet, three SEBI chairmen—GN Bajpai,

M Damodaran and CB Bhave—were not in any hurry to investigate the case. Secondly, a 12-year delay in investigation leads to suspicion of corruption. SAT’s strictures ought to trigger an inquiry by the Central Vigilance Commission on why a case relating to Ketan Parekh, who was identified as the chief architect of the 2000 scam, was so delayed. Thirdly, there must be an inquiry into how many investigations have been pending for five years or more. Let’s not forget that independent regulators, such as SEBI, were set up to build domain expertise and ensure efficient regulation, supervision and market development. If cases relating to important scams can languish for 12 years, isn’t it proof that SEBI has failed its basic mandate?