The appointment process of the chairman and whole-time members of the Securities and Exchange Board of India (Sebi) has suddenly come in the limelight.
First, there was a public interest litigation filed in the Supreme Court, which challenged the amendments to rules governing the appointment of Sebi members and also sought to annul the appointment of U.K. Sinha as Sebi chairman. The petitioners in the PIL are essentially questioning the influence of the finance minister in the appointment of members of the selection committee, in turn influencing the choice of the Sebi chairman.
The finance ministry, in an affidavit filed in response at the Supreme Court, not
only explains the process which led to the finance minister’s selection of members on the selection panel, but also points to the fact that even the selection of the previous Sebi chairman was influenced by the then finance minister. Its affidavit says the previous finance minister approved a high-powered search committee, which shortlisted two names, and recommended U.K. Sinha as their unanimous choice. A news report by The Times of India says that the eventual choice of C.B. Bhave as Sebi chairman was done by the Prime Minister based on the advice of the finance minister—he not only rejected the choice of the search committee, but also differed from the opinion of the deputy chairman of the Planning Commission and the chairman of the PM’s economic advisory council, who were in favour of an extended term for then chairman M. Damodaran.
Where does all this leave us? It merely points to the already well-known fact that the finance minister has a say in the appointment of the Sebi chairman. Not that the appointment process is not important. But as the finance ministry’s affidavit indicates, a debate on these lines will veer towards the fact that the government has always had influence in the appointments process.
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The larger concern is if this influence extends to the functioning of Sebi. The markets regulator is an autonomous body created through legislation and it is imperative that its independence is preserved. It will make more sense to debate the influence on the functioning and decision-making of Sebi, rather than spend too much time on the appointments process.
In this regard, it is important to test the claims made by former Sebi member K.M. Abraham about the finance ministry trying to influence the outcome of some major corporate investigative cases undertaken by Sebi.
And as pointed out in this column before (http://tinyurl.com/Sebi-autonomy), there are also concerns about Sebi’s autonomy in policymaking, what with the finance ministry setting up its own advisory committees to debate the proposals of the Bimal Jalan committee on stock exchanges as well as the new takeover code. The finance ministry has responded to some of these allegations in the affidavit, citing the Sahara and MCX-SX cases, where it says that it has affirmed the view taken by Sebi, despite being approached by members of Parliament to take a different view.
But these and other issues related to the regulator’s autonomy need to be debated to give the markets and the public at large the comfort that Sebi is indeed functioning independently.
The affidavit refers to the controversy related to the case between Sebi and National Securities Depository Ltd (NSDL) and refers to newspaper reports that suggest the Sebi board protected Bhave in the NSDL case. It also talks of charges against Abraham of buying property at a concessional rate. The NSDL case will be heard at the Securities Appellate Tribunal later this month. But more importantly, it must be noted that Bhave had initially recused himself from the selection process because of the conflict-of-interest issue that would arise in the NSDL-Sebi case. News reports suggest that the government prodded him to join, after giving him comfort that he will be ring-fenced from the NSDL proceedings. It’s unfortunate that allegations of a conflict of interest are now being made.
And as far as the allegation against Abraham is concerned, Sebi has already cleared him of the charge. Also, property consultants say that the price paid for the property back in 2009, if anything, seems higher than prevailing market prices in the Bandra-Kurla residential market. It’ll be unfortunate if the debate in the Supreme Court ends up being a mud-slinging contest. Some of the above-mentioned charges and allegations can be easily verified, and it is best that these speculations are put to rest once and for all.
Illustration by Shyamal Banerjee/Mint
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