Sebi board to reconsider NSDL case

The Securities and Exchange Board of India (Sebi) will hold a board members’ meeting later this month to reconsider a decision to clear the National Securities Depositories (NSDL) of irregularities related to initial public offerings (IPOs). “The board meet has been convened to exclusively discuss the NSDL matter,” said a senior Sebi official on condition of anonymity. The regulator in February 2010 had given a clean chit to NSDL after setting aside the findings of a two-member Sebi committee,which had held the depository accountable for its failure to detect fraud. The present Sebi move was necessitated after the Supreme Court on March 28,2011,ordered the regulator to reconsider its earlier decision while hearing a special leave petition (SLP) filed by Social Action Forum for Manav Adhikar,a Delhi-based society. “Since it is a Supreme Court directive,the one option before the regulator is to withdraw its earlier order,which declared null and void the decisions of a special committee that was set up to look in to NSDL’s role in the scam,” said Sandeep Parekh,founder of FinSec Law Advisors and former executive director at Sebi’s legal division. In February this year,a Bench headed by Justice RV Raveendran had criticised Sebi,asking why it had rejected a high-powered committee’s 2008 report on the IPO scam that indicted NSDL. The matter relates to a case in which few market participants reportedly used close to 60,000 fictitious demat accounts to corner share allotments meant for retail investors. The practice was noticed in 21 IPOs between 2003 and 2005. In its February 2011 order,the Supreme Court has asked attorney general GE Vahanvati to present Sebi’s views on former chairman CB Bhave and his role pertaining to the IPO scam involving NSDL. Bhave,whose term ended on February 17,was earlier the chairman of NSDL. Bhave,who took over as Sebi chief in 2008 while the markets regulator was still investigating the case,recused himself to avoid charges of conflict of interest. In December 2008,the Sebi committee comprising Mohan Gopal,director,National Judicial Academy,and V Leeladhar,then the RBI nominee on the board passed an order directing NSDL to conduct internal inquiries and fix individual responsibility for the lapses that aided the IPO scam. The report was placed before Sebi on January 21,2009. However,the regulator dismissed the report on the grounds that the committee exceeded its mandate and therefore its findings were without the authority of law. Subsequently,Sebi heard the matter afresh and disposed of the case,giving a clean chit to NSDL. “We find no evidence that there was any lapse on the part of NSDL in following its own procedures in this regard,” Sebi said in its February 2010 order.