JPC blames Parekh, nexus for stock scam

NEW DELHI DEC. 19. The Reserve Bank of India and the Securities and Exchange Board of India have been indicted by the Joint Parliamentary Committee which probed the stock market scam. The report has no direct reference to the role of the then Union Finance Minister, Yashwant Sinha, but is critical of the Ministry and the then Finance Secretary, Ajit Kumar, for the UTI fiasco. In its unanimous 435-page report to Parliament, the JPC said that there was a nexus between the stock broker, Ketan Parekh, banks and corporate houses. and it recommended that the nexus be probed further by the SEBI or the Department of Company Affairs. The JPC was constituted in April 2001. The 30-member committee, headed by Shri Prakash Mani Tripathi, said the scam was a manipulation of the capital market for the benefit of market operators, brokers, corporate entities and their promoters and managements. Some banks, notably private and cooperative banks, stock exchanges, overseas corporate bodies and financial institutions had been willing facilitators in the exercise. "The scam lies not in the rise and fall of prices in the stock market, but in large-scale manipulations like diversion of funds, fraudulent use of bank funds, use of public funds by institutions like the Unit Trust of India, violation of risk norms on the stock exchanges and banks, and use of funds coming through overseas corporate bodies to transfer stock holdings and stock market profits out of the country. These went largely unnoticed, '' the report said. Referring to the 1992 JPC recommendations, it said that the lack of progress in implementing them had "emboldened wrong-doers and unscrupulous elements to indulge in financial misconduct.'' Expressing concern over the manner in which supervisory authorities and regulators exercised their responsibility, the JPC suggested the setting up of a statutory body to supervise and periodically review the current recommendations. Though there were valid reasons to believe that the corporate house-broker-foreign institutional investors nexus played havoc in the Indian capital market through fraudulent manipulation of prices at the cost of small investors, the JPC was ``severely handicapped'' from making purposeful recommendations as it did not get enough material from the regulators, it said. Referring to the functioning of bourses, especially the payment crisis faced by the Calcutta Stock Exchange, the committee said SEBI should evolve an effective system of compliance with inspection findings. "It was SEBI's job to ferret out the irregularities and defuse them before they blew up. This was the primary job of SEBI which it failed to do in time.'' On the redemption crisis faced by the UTI in June, 2001, the JPC put the then Finance Secretary, Ajit Kumar, in the dock for not acting promptly or bringing the problem to the Minister's notice. "The Secretary considered the problem in a routine and casual manner which is not expected from an officer of his rank,'' the report said.