BackSebi to revive order against NSDL
Sebi to revive order against NSDL
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Mumbai: Capital market regulator Securities and Exchange Board of India (Sebi) told the Supreme Court on Monday that it will take action against National Securities Depository Ltd (NSDL) for failing to prevent the opening of thousands of fictitious demat accounts at the centre of the initial public offering (IPO) scam of 2003-05.
The move marks the revival of an order against NSDL that was headed by former Sebi chief C.B. Bhave when the scam took place.
A Sebi probe during the tenure of M. Damodaran, Bhave’s predecessor, unearthed the IPO scam that involved 21 public floats launched between 2003 and 2005. Investigations showed that shares reserved for retail investors were cornered illegally by large investors through at least 59,000 fake demat accounts.
Bhave took over as Sebi chief in February 2008 for a three-year term. He was succeeded by U.K. Sinha in February.
On Monday, the regulator agreed before the apex court to take action against NSDL and its officials accused in the report by a two-member Sebi committee that probed the issue. It is not known when Sebi will take the action.
The two-member panel of G. Mohan Gopal, director of the National Judicial Academy, and former Reserve Bank India deputy governor V. Leeladhar, had passed an order in December 2008 against NSDL, directing it to conduct an enquiry to assess the failure to detect the fake demat accounts. Both were members of the Sebi board at the time.
The panel had held NSDL responsible for the irregularities. NSDL was indicted for failing to put in place adequate risk management systems and processes to prevent the opening of fake accounts. As Sebi chief, Bhave had recused himself from the case.
The panel had directed the NSDL board to conduct an independent inquiry to establish individual responsibility for the failure to meet legal duties and responsibilities. It also ordered the depository to take necessary action to ensure individual accountability for such failure within six months.
A year later, in November 2009, Sebi declared two of three decisions of the committee “null and void", and later in February 2010, withdrew all charges against NSDL. Following a board meeting, Sebi disposed of a show-cause notice issued to NSDL, effectively clearing it of all pending charges.
The scrapping of the Sebi order prompted a protest by Mohan Gopal.
“As an outgoing (part-time, independent) member of the Sebi board, I write to convey my strong concern about the gross abuse of power and corrupt practices in the Sebi board over last two years to protect Bhave from being subjected to independent inquiry with respect to his actions as chairman of NSDL during IPO scam," he wrote in a letter to Prime Minister Manmohan Singh, which was cited by the Press Trust of India in an 8 May report. Mint has since reviewed a copy of the letter.
Bhave declined to comment for this story.
On 28 March, a bench consisting of justices R.V. Raveendran and A.K. Patnaik asked why the Sebi board had stopped the order against NSDL going into effect. The bench asked the Sebi board to reconsider the matter, pass an appropriate resolution and place it before the court for further consideration.
Following a board meeting on 26 April, Sebi, on 5 May, filed an affidavit agreeing to reconsider the order. The issue went to the apex court after a special leave petition was filed by Delhi-based non-governmental organization Manav Adhikar.
anirudh.l@livemint.com
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