Sucheta Dalal :At loggerheads: SEBI and the Finance Ministry
Sucheta Dalal

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At loggerheads: SEBI and the Finance Ministry  

Aug 22, 2007

At loggerheads: SEBI and the Finance Ministry


By Sucheta Dalal


Mumbai, August 22: Relations between the Securities and Exchange Board of India (SEBI) and the Finance Ministry have turned rather cold. Serious differences having erupted over several decisions of the chairman, including senior appointments and the quality of information provided to the Finance Ministry.

Problems between the regulator and the Finance Ministry are not new. Even under Chairman D.R. Mehta, strong letters made their way to the regulator from the Finance Ministry, especially in the aftermath of the Ketan Parekh scam. These missives were often seemed like a directive to the regulator to initiate certain actions. 

Yet, the differences between the regulator and the Finance Ministry are far more serious this time. They relate to three kinds of issues – providing inaccurate information to the Finance Ministry, differences over senior level appointments and differences over policy decisions.

The first issue is of grave concern and has attracted strongly worded letters of censure by the Finance Ministry because information from the regulator is often sought to brief parliament. In one case, SEBI is understood to have wrongly informed the ministry that the National Securities Depository Limited (NSDL) continues to levy exit charges on those who wish to switch their account to another depository. A miffed NSDL has moved the Securities Appellate Tribunal against the SEBI decision to scrap exit charges, even though it has complied with the order. Another, far more serious dispute arose when V. Leeladhar, Deputy Governor of the Reserve Bank of India (RBI) objected to SEBI’s interpretation of the Securities Contract Regulation Act on the basis of a word that was reportedly not in the statute, say informed sources. Since SEBI meetings are a closed door affair, the details of this episode are not fully available. However, it did lead to a situation where the Finance Ministry representative as well as the RBI representative on SEBI’s board stayed away from two board meetings of the regulator.

We must, however, mention that they did attend the last meeting and even ratified some Executive Director level appointments, one of which had not been ratified for well over a year.

Senior appointments are another area of conflict between the SEBI chairman and the government. While SEBI has taken the stand that senior level appointments need not fulfil the criteria of work experience applicable for government officials (on deputation) the government obviously does not agree. Incidentally, as we mentioned earlier, these appointments have created a lot of heartburn among SEBI’s senior officials, leading to some corrective action in the form of a flurry of promotions of SEBI’s own cadre officials. Yet, the morale remains low and insiders bitterly complain of favouritism and coteries that get all the plum assignments.

The differences over policy are evident in several areas. One issue that this writer has followed with astonishment is SEBI’s determination to scrap the Reverse Book Building rules that give minority investors a say in the price at which a company can delist their shares from the bourses. In fact, SEBI went ahead and debated the issue at its Primary Market Advisory Committee, despite 17 investor associations recognised and registered by SEBI having passed a unanimous resolution urging the regulator not to change the rules. Since the investors’ representatives were opposing the change and companies have not openly opposed the delisting mechanism, it is not clear whose interests SEBI was serving. The irony is that on the day of the SEBI board meeting (August 22), the regulator clearly leaked information to a business paper that it intended to drop its plans to change reverse book building rules and maintain status quo. Who was it conveying a message to?

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-- Sucheta Dalal