The finance ministry, in its affidavit in response to a PIL filed on appointments in Sebi (which was withdrawn on Monday), had indicated that the concerns on the role of NSDL in the IPO scam played a major part in not giving extension to former chairman C B Bhave. In an exclusive interview with Santosh Tiwari, G Mohan Gopal, former Sebi member and author of the order on the NSDL case, said his order was reversed in a collusive manner. Edited excerpts:
You wrote a letter to the prime minister. Do you think that played a role in Sebi appointments after that?
I have not seen the affidavit. I am neither interested in nor have I ever expressed a view on the appointment or continuation of anyone as the chairman of a member of the Securities and Exchange Board of India (Sebi). I have nothing against the individuals concerned here and wish them well personally. If it is indeed true, which seems to be the case, that the government took the whole issue of the manner in which the National Securities Depository Limited (NSDL) matter was handled by Sebi very seriously, I am happy about it because the issue raises a number of institutional and policy concerns. I am really reassured by this, quite separate from the question of extension.
What prompted you to write the letter?
I raised the issue to the level of the PM and finance minister because of the extreme seriousness of what was going on — for two reasons. First, the Sebi board was illegally usurping the function of the judiciary by sitting in appeal over a quasi-judicial order, violating well established Supreme Court judgments on the exercise of quasi judicial power. A quasi judicial order can be reviewed at the instance of an aggrieved party only by an authority empowered to do so under the relevant statute (in this case the securities appellate tribunal, or SAT) or under a court of competent jurisdiction.
Under the Sebi Act, and under well established procedure and precedents, Sebi has no power to review its own quasi judicial orders. This was such a serious matter that no less than former Chief Justice of India J S Verma, one of the world’s most respected jurists, expressed serious concern about Sebi’s action in this regard in a public statement. Second, Sebi was extending preferential treatment, violating precedents, procedures and the law on a matter in which, according to the board itself, on the record, the then Sebi chairman had a conflict of interest. There was a serious undermining of the rule of law.
Even worse, the board, acting as a whole, held an unprecedented quasi judicial hearing and issued a new set of orders, although there was no policy or regulatory framework for the entire board to hold such a quasi judicial hearing. As against the practice of holding quasi judicial hearings in public, this hearing was privately held as part of the board meeting.
I kept telling them not to follow separate sets of rules for individual companies, especially for a company once chaired by the Sebi chairman and in relation to proceedings pertaining to his legal liability. If you want to violate your procedures, namely, suppress, not upload, review, nullify, replace — all unprecedented and without legal or procedural basis, don’t do it for any company, least of all for a company where the chairman’s potential legal liability is at stake. And then you still go ahead, exculpate his company and basically exculpate him!
Did you convey these concerns to the government?
At an early stage, I visited the then finance secretary, Ashok Chawla, and spoke to him. He may well have acted on the issue, but it did not change the course of events. The issue was constantly and deliberately twisted and misconstrued as “the committee acted beyond its mandate”, because it had one or two observations critical of Sebi. As a result, my sense is that the right picture was not allowed to be conveyed to the highest level.
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So, you brought all this to the notice of the finance minister and the prime minister?
I wrote in my letter about the collusive behaviour in the functioning of Sebi. This risk of collusion will not change unless we change the organisational structure for adjudication by Sebi. The legal and ethical framework under which the board functions needs to be reviewed. Conflict of interest is a huge issue.
What do you think is the remedy?
If I accept Bhave’s statement — why should I doubt it? — that not only was he formally not in the meetings (which he was not) but even outside the meetings and had no role, this raises an even more serious question.
If it was not Bhave, who was behind the huge effort to provide a special dispensation to NSDL? And, why? For what consideration? There should be an inquiry to find out who was behind it. And, if the system has been penetrated for one company today, somebody else can do it for some other company tomorrow.
It raises very serious structural questions. I don’t want to point finger at anyone. My intention is that public opinion should be created in support of corrective policy reform.
This also shows that the finance ministry didn’t do anything, despite being aware of the situation?
It appears that the finance ministry has acted firmly now. To me, at a time when we are all talking of corruption by the political class, this is an instance that indicates a serious threat to governance is collusion among bureaucrats, lawyers, companies and even sections of the media, especially in the financial sector.
Only the judiciary could be above these influences and in a position to uphold the rule of law.
It seems that intervention of a minister at the political level was what eventually corrected a situation that was a result of bureaucratic failure and collusion.
When such collusions take place at the bureaucratic level, the top political level of the finance ministry could be easily misled. This needs to be corrected structurally.