Supreme Court had directed market regulator to take a second look at the inquiry report which was previously thrown out, in an obvious attempt to hide wrong-doings
The directors of the Securities & Exchange Board of India (SEBI) will meet on 26th of April to re-consider its exoneration of the National Securities Depository Limited (NSDL) on the direction of the Supreme Court of India. Although technically the SEBI board is meeting again, there will be many new faces around the board room table this time. The directors will once again consider the report of a two-member bench of the SEBI board, whose findings against NSDL were thrown out by a previous set of board members calling them "non-est" (or void).
For starters, the meeting will be headed by the new chairman UK Sinha. The previous meeting was chaired by TV Mohandas Pai, who is still on the SEBI board. Mr Pai stepped in since the then SEBI chief, CB Bhave, had recused himself from decision-making. Mr Bhave headed NSDL when SEBI initiated action against the depository in connection with the IPO scam.
Dr Mohan Gopal (chief of the National Judicial Academy) has been replaced by VK Jairath, former principal secretary of Maharashtra. Dr Gopal also remained absent from the previous meeting as he was one of the two members of the bench, whose findings were considered null and void (or non est), giving a clean chit to NSDL and CDSL.
Similarly, the Reserve Bank of India will be represented by Anand Sinha (instead of Usha Thorat) while the Ministry of Corporate Affairs will be represented by DK Mittal (in place of R Bandyopadhyay). Most importantly, Dr K P Krishnan, joint secretary, capital markets, who dominated all decisions related to the capital market and took the lead in burying the NSDL investigation that exonerated CB Bhave, has been replaced by his successor Dr Thomas Mathew.
The only constant are the three whole-time directors (WTDs) of SEBI, of whom two, MS Sahoo and KM Abraham, are set to complete their term in a few months. They were vociferously in the Bhave/NSDL camp.
In February 2010, the SEBI board focused on technicalities to exonerate NSDL of the charge of failing to detect the massive manipulation of initial public offering (IPO) allotments by a set of operators who packed the retail quota with multiple applications. The exoneration happened at the end of a long series of dubious decisions which ran as follows:
1. Appointment of CB Bhave as SEBI chairman when there were SEBI investigations pending against the organisation he previously headed.
2. The assumption, implicit in this decision that NSDL was not even guilty of minor transgressions or carelessness.
3. Attempt to artificially "ring-fence" Mr Bhave from NSDL-related issues.
4. Appointment of a two-member board committee (comprising Dr Mohan Gopal and former RBI deputy governor V Leeladhar) to decide NSDL-related issues.
5. The mistake in assuming that NSDL will get a clean chit from the bench.
6. The attempt to bury the Gopal-Leeladhar report for several months.
7. Making the report public only after a public interest litigation was filed in the Andhra Pradesh High Court.
8. Exoneration of the rival Central Depository Services Limited (CDSL) through a one-line order, although charges against it were far more serious.
9. And finally the controversial board meeting which exonerated NSDL and refused to consider a contrary legal opinion by no less than JS Verma, former chief justice of the Supreme Court of India.
Unfortunately for SEBI, a Delhi-based NGO called Manav Adhikar filed a special leave petition before the Supreme Court, which led to a direction by the apex court (on 28th March 2011) to reconsider its decision.
Interestingly, the humiliation heaped on Dr Mohan Gopal, a man with a formidable legal knowledge (apart from heading the National Judicial Academy, he taught law at the Harvard Law School) is probably unparalleled in so-called independent government bodies.
In fact, apart from re-examining its orders, the SEBI board ought to re-examine its completely inadequate regulatory authority over NSDL. As Moneylife has pointed out, the depositories are governed by a separate statute, which is administered by SEBI, but have grown far beyond their original mandate into areas where SEBI has no jurisdiction. Consequently, much of the business is dangerously outside any supervisory or scrutiny mechanism.
With such overwhelming evidence of such biased decision-making at the highest levels on this issue, and the Supreme Court deeming it fit to reopen the issue, it remains to be seen which way the new SEBI board, under a new chairman, will tilt. Will it go for the truth or for the status-quo?
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