In response to your story about Sebi (Securities and Exchange Board of India) imposing a penalty of Rs1 crore on DLF (Mint, 21 February), we would like to highlight a few issues arising out of this order.
A regulator should not be seen shining in vindictive glory. Unfortunately, the timing of Sebi’s recent adjudication order against DLF gives the impression that the regulator is trying to settle a score. The earlier order of Sebi in respect of dealings of Bhoruka shares was set aside by SAT (Securities Appellant Tribunal) mainly on the ground that Sebi had prejudged the issue at a preliminary stage without giving any opportunity of hearing to the parties concerned. The dissatisfied regulator then had to approach the Supreme Court. A final disposal of the matter is still pending.
Sebi has now issued an order imposing a penalty of Rs1 crore on DLF—this is at a time when the company is in the process of coming out with its initial public offer. The company can, no doubt, pay up and get rid of regulatory wrath once and for all. The second option for the company is to approach SAT and challenge the order. In any case, it would be interesting to see why Sebi is so angry.
The facts of this matter do make interesting reading. DLF purchased the shares of Bhoruka Financial Services Ltd (BFSL), a company listed on the Bangalore Stock Exchange. There has been no trading in the shares of the company since 1988. DLF decided to take control of BFSL probably to acquire its land assets. The entire transaction took place on the trading floor of the Magadh Stock Exchange (MSE), a stock exchange duly recognized by Sebi, but prohibited from undertaking any trading activity.
Although the scrip was not listed on MSE, the trade was carried out in the permitted category after seeking the permission of the management of the stock exchange. Sebi is angry because this permission was wrongfully granted. In that case, Sebi should be angry at the stock exchange which wrongfully granted the permission.
Why should only the traders be punished? MSE is still a recognized stock exchange. In fact, the recognition of the stock exchange was renewed after this incident.
The present matter is a classic example of regulatory focus being diverted. Sebi should focus on larger issues such as management of regional stock exchanges. It is curious why these regional stock exchanges should be allowed to exist when they cannot undertake any trade.
The kind of indiscipline shown by MSE is a symptom of a larger problem. A report of the committee constituted by Sebi on regional stock exchanges had considered some of the issues and provided recommendations.
It is now time for Sebi to do some serious business. By imposing penalties on defaulters, the regulator will catch the limelight only for a day or two.
The authors work as managers with the Reserve Bank of India. The views expressed here are their personal views and not those of their present employer. We welcome your comments at firstname.lastname@example.org.