The Securities and Exchange Board of India (Sebi) today asked the country’s largest depository, National Securities Despository Ltd (NSDL) to comply with the order of the two-member Mohan Gopal committee in the initial public offer (IPO) scam.
The move comes in the wake of a Supreme Court observation raising questions over the clean chit to the depository. The case dates back to Sebi’s investigation into a IPO scam in 2003-05, when operators had created fictitious demat accounts to corner shares reserved for the retail segment. Upon listing, these shares were sold at huge profits by them.
When the IPO scam surfaced, Sebi’s former chairman C B Bhave was heading NSDL. On his appointment as head of SEBI in 2008, to avoid any conflict of interests, a two-member committee was constituted to look into SEBI’s proceedings against NSDL. The committee comprised the then Sebi board members Gopal and V Leeladhar. In December 2008, the committee passed three orders containing adverse findings on NSDL in the IPO scam.
It said NSDL should conduct an inquiry to establish individual liability in the case.
The Sebi board (with Gopal dissenting), however, appointed three part time members to decide whether the committee had acted within its framework and terms of reference. In August 2009, the board considered legal opinion and decided that the committee had commented on Sebi’s shortcomings, which was outside the confines of the delegation and without the authority of law.
The board said the findings vitiated two of the three orders of the committee, which were consequently declared null, void and non-est (non-existent in law). Later the the Sebi board (excluding Bhave) resumed the NSDL case and finally disposed two cases, exonerating the depository.
The NGO, Social Action Forum for Manav Adhikari, had last year filed a petition before the Delhi High Court against the manner in which Sebi had disposed its special committee’s report, and asked, among other matters, that Sebi’s board decision declaring the committee’s report as ‘non-est’ be quashed.
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It had also sought “an investigation regarding the various acts committed by Bhave in his capacity as Sebi chairman to give undue favours to NSDL”.
The High Court had dismissed the writ petition and imposed a fine of Rs 50,000 on the petitioner. The petitioner moved the Supreme Court, which had asked Sebi to explain its position in two weeks.
With the matter gathering steam, a letter written by Gopal to the Prime Minister’s Office in December 2010, came into focus. The letter surfaced after a Right to Information (RTI) application was filed in March. It reportedly has damning allegations about the way the NSDL investigation was conducted.
Meanwhile, Gopal had also written a letter to the Prime Minister on the issue in December last year. The letter surfaced after a Right to Information (RTI) application was filed in March. It has some damning allegations about the way the NSDL investigation was conducted.
Gopal had alleged in the letter that he was “threatened” when he objected to the “illegal and unethical actions” of the board. “An informal clique of current and serving bureaucrats, Sebi officials, lawyers and corporate interests, orchestrated this subversion of the due process of law. They illegally interfered with an independent Sebi adjudication, manipulated legal opinion, suppressed and misrepresented facts and misled the Sebi board and government officials about the legality of the orders.”
According to Gopal, the incumbent director of the National Judicial Academy, Sebi’s stance on NSDL took a U-turn after Bhave became chairman. “...every single investigation prior to Bhave joining Sebi had found failures in NSDL’s role under his (Bhave) leadership during the IPO scam. After Bhave took over, however, there has been a stunning reversal of Sebi enforcement actions against NSDL — all Sebi actions against NSDL in relation to the IPO scam have been stopped, dropped or reversed,” the letter had alleged.