Former Sebi member Abraham’s claims under CVC lens

Former Sebi member Abraham’s claims under CVC lens

New Delhi: A new chapter has been added to the saga of allegations and counter-allegations involving the Securities and Exchange Board of India’s (Sebi) chairman and a former member, with the Central Vigilance Commission (CVC) initiating investigations into a complaint levelled by the regulator’s former board member K.M. Abraham.

The government’s anti-corruption agency initiated the move after vigilance commissioner R. Sri Kumar received a letter from Abraham alleging interference by senior officials in the finance ministry in the regulatory function of the stock market watchdog—allegedly to favour select corporate houses.

This development comes at a time when the stock markets have turned volatile following inclement global economic conditions, making Sebi’s oversight that much more critical.

An official in CVC, who asked not to be identified given the sensitivity of the matter, said: “CVC has asked the finance ministry to submit a report on the allegations. We will take the next step after we receive the report from the ministry." This person did not rule out involving the Central Bureau of Investigation, the country’s apex investigation authority, at a later stage, since the “allegations were serious".

Sri Kumar declined to comment. A Sebi spokesperson declined to comment.

The finance ministry confirmed that it had received a CVC query. “We have sent the Sebi chairman’s letter to CVC as well as the relevant files in finance ministry on the allegations (the) member, Sebi, had made. Those files will speak for themselves," said a ministry official, familiar with the matter, but who did not want to be identified.

The Economic Times (ET) reported on 9 August that U.K. Sinha, chairman of Sebi, had, in a letter dated 8 July and addressed to R. Gopalan, secretary, economic affairs, denied the charges and described them as baseless and “an attempt to tarnish the image of the government".

Abraham’s letter dated 1 June to Prime Minister Manmohan Singh, with a copy to CVC, alleged interference in Sebi by the finance ministry “with the knowledge of finance minister Pranab Mukherjee".

Mint has reviewed a copy of this letter obtained through a Right to Information application made to the Prime Minister’s Office.

In the nine-page letter to the PM, Abraham lists four high-profile cases in which the Sebi chairman asked him to compromise, citing pressure from Mukherjee’s office.

“The admissions of the chairman in his own words about the need to ‘manage’ some of the cases now live in Sebi, about the interest that the Union finance minister has in some of them, the admission that Smt. Omita Paul is behind what is happening, the difficulty that he is experiencing in interacting with key ministry officials suggest to me that Shri Sinha is being pressured to intervene in several cases that are currently being dealt within Sebi," the letter said. “On several occasions, Shri Sinha mentioned that ‘they are not interested in too many cases in Sebi’ and if he is able to ‘manage’ these few cases, then it becomes ‘easy’ for him’."

Paul, adviser to the finance minister, denied these charges. “I have not made any calls to him (Abraham), asking him to do anything. He also agrees to it. I have not met him and I won’t recognize him if I ever meet him. How can I be blamed?" she said.

In his letter, Abraham detailed four cases—Sahara group, Reliance Industries Ltd, Reliance-Anil Dhirubhai Ambani Group (now Reliance Group), Bank of Rajasthan Ltd and the MCX Stock Exchange Ltd—handled by him, in which he was asked by Sinha to be lenient since these cases are of interest to the finance ministry.

The finance ministry’s response is that there has been no favouritism. “The finance ministry did not favour any of the companies that he has mentioned in the letter. In fact, if you go through our files, it is the contrary," said the same finance ministry official mentioned in the first instance.

Indeed, finance ministry files reviewed by Mint do show that the ministry has taken a stand against both Sahara and MCX-SX, effectively supporting Sebi’s position that the former was raising money from the public without having permission to do so and, in the second case, refusing to intercede and fast-track MCX-SX’s request that it be allowed to operate in the equities segment because the case was before the courts and the ministry had no role to play.

“Can it be any more fair than this?" asked the finance ministry official.

The ET story quoted Sinha as saying in his letter that Abraham “appears to be in a deeply disturbed state of mind, suffering from a persecution complex and delusions that everybody is out to harm him", adding that his behaviour had become “erratic" because of the income-tax (I-T) probe against him.

The genesis of the present controversy began when the Central Board of Direct Taxes (CBDT), citing a conflict of interest and violation of service rules, started an investigation into the purchase of a flat in Mumbai by Abraham and M.S. Sahoo, also a former member of Sebi. The CBDT investigation began after the finance ministry received anonymous complaints along with the details of the purchase deeds and the I-T returns of both Abraham and Sahoo. Sebi informed the finance ministry that the allegations were baseless.

Abraham, a serving Indian Administrative Service officer whose tenure as member, Sebi, ended on 20 July, declined to comment.