tag:blogger.com,1999:blog-218162562635694448.post1636794896251382468..comments2024-03-25T18:45:46.768+05:30Comments on Initial Private Opinion: Satyam - lessons for India Inc.Sandeep Parekhhttp://www.blogger.com/profile/08840653819247769331noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-218162562635694448.post-6645004946512487792009-01-14T14:14:00.000+05:302009-01-14T14:14:00.000+05:30Even after the recent developments, officials of S...Even after the recent developments, officials of SEBI do not appear to have learnt much.<BR/><BR/>There are numerous legal flaws in the order dated 7th Jan of P K Nagpal, Executive Director, SEBI, authorizing investigation into the Satyam affair. This can severely curtail SEBI’s ability to take enforcement action later. <BR/><BR/> In this case, the matters to be investigated mainly are cooking of books (violation of clause 49 of listing agreement) and Off market transfer of shares (through pledge etc). Both these violations fall under Securities Contracts (Regulation) Act, 1956/ Rules, 1957(Section 23, Rule 19 and Section 13 / section 18 of SCRA). <BR/><BR/>The investigation order of 7th Jan (as available on SEBI website) issued by Mr P K Nagpal, Executive Director, has following glaring mistakes:<BR/> <BR/>1) It invokes powers under SEBI (Merchant Bankers) Rules. These Rules are no more in existence and were rescinded vide notification 1455 of 07/09/2006. <BR/><BR/>2) The order signed by Mr. P K Nagpal, mentions Securities Contract (Regulation) Act, 1956 as having been notified (made) under SEBI Act, 1992<BR/><BR/> 3) For appointing the investigating authority, the order invokes Regulation 7 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Markets) Regulations, 2003; and Regulation 29(1) of the SEBI (Merchant Bankers) Regulations, 1992. Mr Nagpal should know that Regulation 5 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 2003 deals with the appointment of “Investigating authority” and not regulation 7. Further, Regulation 29(1) of SEBI (Merchant Bankers) Regulations, 1992 refers to the appointment of “Inspecting Authority” and not “Investigating Authority”, whereas vide the said order and under said Regulation 29(1) SEBI has appointed an “Investigating Authority”. <BR/><BR/>4) There is no order to investigate violations of SCRA. Therefore, there is no power vested with the Investigating Authority to inquire into all major aspects of the Satyam case, which prima facie mainly involves SCRA violations. The investigating authority is, thus, empowered with a defective order. <BR/> <BR/>All of this points towards lack of application of mind. Later, Satyam may argue on these basic defects in the order of Nagpal and get relief. One can only hope that SEBI wakes up nowsddhttps://www.blogger.com/profile/05871521559559162693noreply@blogger.com