25 March 2009

SEBI Board - suppression of key findings

A newsreport today titled "Sebi hushes up bench’s orders on Bhave's cases" in the Times of India, is a news which is likely to dwarf the Satyam news in its repercussions. In a clear damnation of the rest of the Board, two members of SEBI accuse the Board of the regulator and its Chairman - on charges of suppression of an order passed by them damning its chairman CB Bhave in several cases against the organisation that he headed before joining SEBI:

NEW DELHI: The Securities and Exchange Board of India (Sebi) has been keeping secret for over three months the orders issued by one of its benches in cases involving a conflict of interest of its chairman C B Bhave because of his earlier avatar as head of National Securities Depository Limited (NSDL).

The orders dated December 4, 2008, pertaining to three cases of the 2006 initial public offering (IPO) scam, held that NSDL's systems during Bhave's stewardship were so lax that tens of thousands of fake depository accounts were created to corner shares reserved for retail customers. The orders also directed NSDL to carry out an independent inquiry to establish individual accountability for supervisory or regulatory lapses.

Instead of displaying them on its website and enforcing them as is routinely done in all cases, Sebi has been suppressing the orders in violation of the special mechanism that had been created by its board in August 2008 to keep the chairman out of the decision-making loop on matters involving conflict of interest on his part.
Both Gopal and Leeladhar, when contacted, confirmed that they had "unanimously" passed their orders in the NSDL cases on December 4, four days before Leeladhar retired from RBI. Gopal said that he had also expressed "serious concern" to Sebi over its failure to make the orders public.

The ongoing attempt to review the orders against NSDL runs contrary to the scheme of the law, which stipulates that once a bench of Sebi signs its decision, the only remedy available to an aggrieved party is to approach Securities Appellate Tribunal (SAT). There is no provision that empowers other members of Sebi to withhold and reconsider any orders issued by one of its benches on the completion of adjudication"

As Mohan Gopal asserts - he had expressed serious concern to SEBI over its failure to make the orders public, it is not clear whether he means the Board of the SEBI or the Chairman alone. Since the order(s) were, peculiar to the situation, passed by non whole time members of SEBI, it is highly doubtful that they did not raise the issue at the Board level. In which case, the Board of SEBI now competes with the Board of Satyam in its morality quotient. I really think India suffers more from the bad actions or inaction of its so called good people than it does from the actions of the worse kinds of people.

See my previous postings on RTI and transparency at SEBI. Interestingly my RTI application seeking Board Agenda and Minutes predates the order by 2 days - which was rejected but the SEBI Board meeting of the 4th December (also the date of the order) was in fact put up on the SEBI website 'in the interest of transparency'. See the SEBI PR of 4th December:

"In order to bring transparency in the working of the Board it was decided that the agenda papers submitted to the Board on all policy issues will be made available in the public domain by putting them up on the SEBI website after the Board has taken a decision on the issue. The minutes of the meeting relating to such items will also be made available on the SEBI website after the Board has approved the minutes. Accordingly the agenda papers for today’s Board meeting will be made available on the SEBI website by December 15, 2008."

Interestingly the 4th December 08 Board minutes are not put up in a minute format of SEBI but in the format of a table with Agenda and Decision. Thus any discussion brought on the table (as the order was passed on the 4th Dec itself, it could not have been put on the agenda) would escape the scrutiny of the public. Sharp minds at work.

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