Mumbai: India’s capital markets watchdog Securities and Exchange Board of India, or Sebi, plans to convene a special board meeting this month to discuss the contentious orders issued by an independent committee constituted by the regulator to oversee its proceedings against the country’s premier depository National Securities Depository Ltd (NSDL) in the initial public offering (IPO) scam.
The scam, unearthed in April 2006, involved depositories, depository participants and market operators, who allegedly used or helped some entities use 59,000 fictitious demat accounts to corner shares meant for small investors.
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“The orders have found that NSDL had failed to meet applicable legal standards on the duties and responsibilities of depositories under applicable laws and regulations. We directed NSDL to take measures to strengthen its mechanism so that the investors are protected and to conduct an independent inquiry to establish any individual liability, if any,” G. Mohan Gopal, one of the members of the committee told Mint.
“Orders such as these (which are quasi-judicial in nature) issued by board members under authority of the Sebi board are immediately served on parties and made public by posting on the Sebi web site without being subject to review by any other member,” Gopal added. According to him, these orders are subject only to appeal at the Securities Appellate Tribunal, or SAT. “The Sebi board has currently no legal authority to review such orders,” Gopal said.
However, according to the senior Sebi executive mentioned earlier the orders issued by the panel were not made public because Sebi’s board has certain reservations regarding them and the issue is still under discussion.
“The board will discuss the matter in the meeting and the orders will be made public along with the board’s decision. The board makes matters public only after it has reached a decision,” said this person.
Sebi chairman C.B. Bhave had recused himself from the matter before joining Sebi and was, therefore, not part of the committee constituted by the regulator.
Market regulator: Sebi chairman C.V. Bhave. In January, Securities Appellate Tribunal set aside Sebi order that penalized NSDL,CDSL. Harikrishna Katragadda / Mint
Bhave took over as Sebi chairman on 18 February 2008.
On 5 March 2008, he set up a three-member independent committee to oversee the conduct of all proceedings initiated by Sebi against NSDL to avoid a potential conflict of interest because he came to Sebi from NSDL.
The panel’s members are Gopal, director of National Judicial Academy in Bhopal; V. Leeladhar, former deputy governor of the Reserve Bank of India; and Anurag Goel, secretary, ministry of corporate affairs, as members. Subsequently, the committee was reconstituted with Gopal and Leeladhar as members.
Leeladhar confirmed that he signed the order on 4 December but declined comment for this story.
The Sebi-NSDL row began in April 2006 when in an exparte order, Sebi 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”.
On appeal by NSDL, this order was stayed by SAT.
In November 2006, Sebi passed another order against NSDL and few others asking them to pay a sum of Rs115.82 crore for alleged carelessness in opening of demat accounts. Of this, NSDL’s share was Rs45 crore. Later, NSDL appealed to SAT, the appellate tribunal that hears appeals against the orders passed by Sebi. The tribunal set aside Sebi orders in November 2007, describing its action as a clear “violation of the principles of natural justice”.
In January 2009, SAT set aside another Sebi order that penalized NSDL and CDSL for negligence in opening demat accounts drawing, the curtains on the controversial Sebi action against the two depositories.
Sebi had in April 2007 imposed a penalty of Rs5 crore on NSDL and Rs3 crore on CDSL.
“I have continuously conveyed to all concerned in Sebi my strong concern that the special mechanism established by the board for dealing with matters involving conflict of interest of the chairman is being violated. I have asked that the matter be handled strictly in accordance with the rules and procedures established by the board,” Gopal said.