The Hindu Business Line : Independent SEBI panel for appealing against SAT order

Mumbai, April 2 The independent committee at SEBI which was set up to exclusively look into the regulator’s proceedings against National Securities Depository Ltd in the IPO scam case, had suggested appealing against an order by the Securities Appellate Tribunal relating to the NSDL case.

SAT on January 14 this year, had overturned a SEBI adjudication order fining NSDL and CDSL for lack of oversight in the opening of fictitious demat accounts relating to the scam. If SEBI wanted to appeal against the order, it would have had to do it with two months’ time, by March 14 – which deadline has passed.

(In the IPO case, depositories, depository participants, and some key market players were investigated for unfair cornering of IPO shares reserved for retail investors. Key operators had opened fictitious demat accounts for this purpose)

Prof Mohan Gopal, member of the independent committee, confirmed that written instructions were sent to SEBI for appealing against the SAT order. He said the independent committee is exclusively empowered to decide whether or not an appeal is to be filed on NSDL. The SEBI Board had no authority to review the orders of the committee; in fact it was not to involve the board in the NSDL matter that an independent committee had to be set up.

The establishment of this special committee had come about when Mr C.B. Bhave, who headed NSDL during the days of the IPO scam, took over as Chairman of SEBI.

Mr Bhave had withdrawn from the case, citing conflict of interest.

The orders of the independent committee, which were finalised on December 4, 2008, were never made public by SEBI; it is learnt that some board members are insisting that the board should review the orders. Whereas according to Professor Gopal, the committee was vested with all the powers available to whole-time members of SEBI; and that no orders issued by any SEBI member has ever been open to review by the SEBI Board and why should this case be singled out? The Board comprises, among others, the Chairman and two whole-time members.

The order of December 4, 2008, was neither served by SEBI on NSDL nor made public.

Broadly the order of the committee said that NSDL had not discharged its responsibilities under the law. NSDL was requested to put in facilities in place to prevent such an occurrence. And, although no individual liability was fixed, the committee asked NSDL to order an enquiry to establish individual liability, if any.

There were three SEBI orders relating to the IPO scam and NSDL. The ex-parte interim order of April 2006 said the depositories (both CDSL and NSDL) had not maintained appropriate oversight over depository participants and had asked for a revamp of these institutions. This appeal was stayed by SAT.

The second was a disgorgement order of November 2006 which was reversed by SAT on technical grounds of “equity and natural justice”. The third adjudication order fined NSDL and others for their oversight that ultimately led to fictitious demat accounts that were opened by DPs. This was also set aside by SAT.

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