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Is ‘go slow’ the message for Sebi team?

Is ‘go slow’ the message for Sebi team?
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First Published: Tue, Jun 21 2011. 01 15 AM IST
Updated: Sat, Jul 02 2011. 04 12 PM IST
It’s payback time for C.B. Bhave and his crack team which significantly improved the enforcement function at Securities and Exchange Board of India (Sebi). Or so it seems. After reports that Bhave’s tax returns were randomly picked up for scrutiny, it now emerges that two board members who worked with him are allegedly being harassed by the income-tax department.
The income-tax department had promptly clarified that Bhave’s tax returns were picked up by its computer-aided scrutiny selection, and that they were routine tax proceedings. It added that the notices were issued prior to his retirement in February, and hence it is entirely incorrect to come to a conclusion that the government is trying to harass him.
According to a report in The Economic Times, K.M. Abraham, a Sebi board member, has written to the Prime Minister accusing the income-tax department of harassing him at the instigation of some officials in the finance ministry and those adversely affected by his orders. According to him, a similar treatment is being meted out to M.S. Sahoo, who is also a Sebi board member. Abraham is responsible for investigations, market regulation and surveillance, vigilance and corporation finance. Sahoo is responsible for the regulation and surveillance of market intermediaries, legal affairs, enforcement and derivatives markets.
There have been anonymous charges floating that the two members bought an apartment each in Bandra-Kurla complex at a discount to the market price and without having adequate resources. The finance ministry referred this to Sebi, which in turn conducted an investigation and cleared the two board members of these charges. But according to Abraham, the harassment continues with the income-tax department still seeking irrelevant details about the transaction.
It’s no secret that Bhave and his team ruffled many feathers during his term as chief of the market regulator. Almost the entire mutual fund industry was against the regulator for banning entry loads. It also had a public spat with the insurance regulator on who should govern unit-linked investment plans. It stopped companies of the Sahara Group from raising funds from the public after finding that some group companies were flouting norms while mobilizing funds. It rejected MCX Stock Exchange’s application to start an equities trading platform, and fined officials from the Anil Ambani group Rs 50 crore as well as imposed a one-year ban from the markets on them. There were other tough orders issued by the regulator under Bhave and some other high-profile investigations such as the insider trading case involving Reliance Industries Ltd and the erstwhile Reliance Petroleum Ltd.
Abraham has claimed in his letter to the Prime Minister that the harassment being meted out to him is at the behest of entities adversely affected by his orders. But the more worrying allegation is that officials in the finance ministry are also involved. This column has already expressed concerns about the recent attacks on the market regulator’s autonomy. If the above-mentioned allegations are true, the relationship between the ministry and the regulator seems to be far more tangled.
Spare a thought for Sebi’s current chairman U.K. Sinha and the new officials who will take the place of Abraham and Sahoo, when they retire next month. The message seems to be that Sebi’s new found enthusiasm for rigorous investigation and sound arbitration is not really welcome. And that the regulator may be better off being lax in its investigations and letting off offenders with paltry fines.
One can argue that all this is just conjecture. But this can be tested rather easily. One only has to wait and see how Sebi’s various investigations and legal cases progress. In some cases, the regulator has already made its opinion very clear through well drafted orders. If Sebi sticks to its guns and fights all its cases with the same vigour, the above-mentioned hypothesis falls apart. In some other cases, it is well known in market circles that the offense was worth large sums. If Sebi imposes large fines against such offenses, again, the above-mentioned concerns would prove to be just conjecture. But if Sebi changes its view on some cases, without reasonable explanation, and ends up imposing paltry fines for large offenses, it would appear that its autonomy has been compromised. We will soon know.
Your comments are welcome at inthemoney@livemint.com
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First Published: Tue, Jun 21 2011. 01 15 AM IST
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