Mumbai: India’s capital market regulator Securities and Exchange Board of India (Sebi) will hold its board meeting in New Delhi on Wednesday, the first time it will meet since new chairman C.B. Bhave took office.
According to a person close to the development, the agenda of the board is to set up an independent panel to oversee the ongoing proceedings by Sebi against National Securities Depository Ltd (NSDL) in the initial public offering (IPO) scam.
Since Bhave came to Sebi from NSDL, the finance ministry had asked the regulator’s board to set up a team of part-time members to initiate and monitor the proceedings against NSDL to avoid any potential conflict of interest between a Bhave-run Sebi and NSDL. Bhave will also recuse himself from the case.
“Neither Bhave, who was heading NSDL, nor the nominee of the ministry of finance on the Sebi board will be involved in this special arrangement. These proceedings will be overseen by a three-member team comprised of part-time members of the board. The team will associate an eminent legal expert for professional advice,” a finance ministry press release said.
The Sebi-NSDL row began in April 2006 when Sebi unearthed a scam involving depositories, depository participants and market operators, who allegedly played a role in using 59,000 fictitious demat accounts in cornering share allotments in IPOs for small investors. Bhave headed NSDL when Sebi started its investigation and vigorously fought against the charges.
In an ex-parte order, Sebi had said the depositories “failed to exercise oversight over the depository participants” and the promoters of NSDL (and CDSL, another depository) were directed to take “all appropriate actions including revamping of management.”
In November 2006, Sebi made a disgorgement against NSDL and few others for a sum of Rs115 crore for alleged carelessness in opening of demat accounts. Of this, NSDL’s share was Rs45 crore. Disgorgement essentially means that any ill-gotten gains made should be restored back to the original parties. Later, NSDL appealed to the Securities Appellate Tribunal, the tribunal that hears appeals against the orders passed by Sebi. The tribunal set aside the Sebi order in January 2007, describing its action as a clear “violation of the principles of natural justice.” However, the case is yet to be settled.