SEBI

INDEX

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PARTICULARS OF DOCUMENTS

11---i Affidavit on behalf of Respondent No

PAGEl 1-28

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29-35

Annexure-I -Copy of the Income Tax Appellate Tribunal Members (Recruitment & Conditions of Services), Rules, 1963.

3---l\;lOe;ure:O::-Copies of Newspaper-articles on NSDL-IPO issue.

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54-55

Annexure-III- Copy of letter dated 8.4.2009 from Dr. G. Mohan Gopal addressed to Secretary, Department of Economic Affairs on NSDL-IPO issues.

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Annexure-Tv- Copy of Supreme Court order dated 28.03.2011 in the matter of Social Action Forum. for Manav Adhikar vs DOl & Others.

56-57

Annexure-V- Copy of Supreme Court order dated 09.05.2011 in the matter of Social Action Forum for Manav Adhikar vs DOl & Others.

58-60

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Annexure-Vl- Copy of Supreme Court order dated 05.09.2011 m the matter of Social Action Forum for Manav Adhikar vs UOI & Others -

Annexure-VII - Copy of letter dated 08.07.2011 from Shri U.K. Sinha, Chairman SEBI in regard to the representation of Dr. K.M. Abraham, Whole Time Member, SEBI

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68-106

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Annexure- VIII- Copy of letter dated 1st November,

107

J

2010 from the Finance Minister to Shri Sushil Kumar Singh, MP (LS) L--

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IN THE SUPREME COURT OF INDIA (CIVIL ORIGINAL JURISDICTION) WRIT PETITION (CIVIL) NO. 392 OF 2011 IN THE MATTER OF: ..... Petitioners

S. Krishnaswamy & Ors. Vs. Ministry of Finance & Others

..... Respondents

AFFIDAVIT ON BEHALF OF RESPONDENT NO.1 I, Amit Bansal, working as Under Secretary in the Ministry of Finance, do solemnly affirm and state as under:

1. That I am aware of the facts and circumstances of the present case and am competent to file the present Affidavit on behalf of Respondent No.1. I am filing this short Affidavit to bring to the notice of this Hon'ble Court certain vital and relevant facts which have not been stated in the Writ Petition, which demonstrates the Writ Petition is entirely misconceived and devoid of any merit.

2. At the outset, it is respectfully submitted that the petition does not appear to have been filed bona fide but seeks to espouse the cause of certain disgruntled ex-officers of SEBI. This is itself clear from the fact that it is based on incomplete documents and annexes, a motivated letter dated 01.06.2011 written by an ex-Whole Time Member (WTM) to the Prime Minister making broad, sweeping and 1

unsubstantiated allegations. Further, it may also be pointed out that even though the earlier

Writ Petition was permitted to be

withdrawn by this Hon'ble Court to remove allegations against the Finance Minister, all that seems to be done is to delete the name of Finance Minister as the Respondent but the substance of the allegations remain unchanged. As pointed out hereinafter, the changes made in the petition are only superficial and cosmetic.

Despite the observations of this Hon'ble Court to remove personal allegations, it is also surprising that the Petitioner No.1 has filed an affidavit affirming the petition stating that the contents of the petition and the facts stated therein are "true to his knowledge."

3. It is respectfully submitted that though the Writ Petition seeks to give a colour that public interest is sought to be served, the essence of the Petition as is evident from the prayer number (iii) is to quash the appointment of the present Chairman, SEBI and the WTMs selected in 2011 and to secure the continuance of the earlier Chairman and WTMs through prayer number (v) which seeks a direction to act in accordance with the notification of 23rd July 2009 which stipulates enhancement of the "tenure of existing Chairman and Whole Time Directors of SEBI from three (3) to five (5) years."

When the above two prayers are read together, it would reveal that the petitioners are looking for an indirect way to get the extension for the former Chairman and the two WTMs who relinquished their posts in SEBI in 2011. In these circumstances, it is respectfully submitted that the Petition does not appear to have been filed in 2

public interest, but to espouse the cause of certain persons who themselves did not chose to file any proceedings. Further, the petition is based on several incorrect, inaccurate and wrong assumptions and surmises and as such it is necessary to place the relevant facts before this Hon'ble Court.

4. On the basis of the wrong assumptions and improper appreciation of the procedures that the Government had followed, the Petitioners have made two major allegations.

5.

The first allegation is that the rules have "been altered and it is now possible for people with no expertise in the area to be handpicked at the whims and fancies of those empowered to do so under the amendment and this will impair the working of. SEBI." It is respectfully submitted that this allegation is completely false. This would be demonstrated from the following: (a)

Prior to 23 July 2009, there were no Rules on the procedure to be followed for the selection of Chairman /Whole Time Members (WTMs), SEBI. Rule 3 only provided for the Terms and Conditions of Service of the Chairman and Members of SEBI.

(b)

Prior to July 2009, selections were made by Committees as decided by the Finance Minister from time to time. For the selection of the SEBI Chairman in 2008, the then Finance Minister had approved on Nov. 2, 2007, a "High Powered Search

Committee"

(later

notified

as

the

"Search

Committee") which had four members and one Chairman.

3

The then Finance Minister noted that there should be one more outside expert. Accordingly Dr. S.A. Dave, Chairman, CMIE, was nominated as a member. The composition of the Committee was as under: (i)

Cabinet Secretary - Chairman

(ii) Finance Secretary- Member (iii) Secretary, DFS - Member (iv) Dr. S A Dave, Chairman,

Member

(v) Dr Rammohan Rao, Chairman, ISB, Hyderabad, Member (vi) Joint Secretary (Capital Markets), Convener. (c)

The Search Committee thereafter held its meetings for considering various names for the post of Chairman, SEBI.

(d)

At the third meeting, which was held on 29 January 2008, it was decided that the Government should take a view on the candidature

of

the

then Chairman,

SEBI,

Shri.

M

Damodaran, on the basis of available material. The Committee also unanimously shortlisted two names in the following order: (i)

Shri U K Sinha, and;

(ii) Shri J Bhagwati.

The Committee also recorded that Shri C.B. Bhave had informed the Committee of his disinclination to be considered for the position of Chairman, SEBI, at that point of time.

4

(e)

However, notwithstanding the recommendation of Shri U K Sinha by the Selection Committee, Shri Bhave was appointed as Chairman, SEBI, on 15 February 2008. It may be mentioned that the recommendation of the Committee in relation to Shri U K Sinha was unanimous.

(f)

After the present Finance Minister took over in 2009, a statutory system was established for the selection of Chairman/Whole-time Members of SEBI. He approved the proposal to amend Rule 3 to include provisions relating to the procedure to be followed for

the selection of

Chairman/WTMs of SEBI. This was done by introducing Sub Rule (5) which required the recommendation of the Search-cum-Selection Committee consisting of the Cabinet Secretary, Secretary, Department of Economic Affairs, Chairman, SEBI(for selection of WTMs) and two experts of eminence from the relevant field. (g)

Sub Rule (5) was introduced on 23 July 2009 and reads as follows: "The Chairman and every whole time Member shall be appointed by the Central Government on the recommendation

of

a

Search-cum-Selection

Committee consisting of the following, namelyÂť (i)

the Cabinet Secretary

- Chairman

(ii) Secretary, Department of Economic Affairs Member.

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(iii) Chairman SEBI (for selection of whole-time Member)

- Member

(iv) Two experts of eminence from the relevant field to be nominated by the Central Government Member."

(h)

In 2010, when it was decided to initiate action for the fresh selection for the post of Chairman, SEBI, a note was initiated on 18 August 2010 for the constitution of the Committee. As far as the two experts of eminence from the relevant field to be nominated from the Central Government are concerned, various names were suggested on the file. The names of Dr Suman K Beri, Director General, National Council of Applied Economic

Research,

and

Professor Shekhar

Choudhary, IIM, Calcutta were approved. (i)

While

approving

the

constitution

of

the

Selection

Committee, Finance Minister also observed that going by the earlier precedents, the Committee should have a composition that includes Secretary, Financial Services, who functionally deals with several critical aspects of the capital market. With this addition, the number of nominees in the Search-eum-Selection Committee became 5, the same number as in the previous Committee constituted in 2007.

G)

Unlike in the past, the composition of the Committee was sent to the Department of Personnel Training (DoP&T) for 6

approval. However, on 23 September 2010, (DoP&T) pointed out that inclusion of the Secretary, Financial Services, was not within the Rules amended on 23rd July 2009 since the Secretary, Financial Services was not mentioned therein. Accordingly, the matter was referred to the Ministry of Law & Justice. (k)

During the discussions that were held with the Ministry of Law, its Joint Secretary and the Additional Secretary suggested that there could be an amendment based on the Rules pertaining to the Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules 1963. Under these Rules, the Selection Board interalia consists of a nominee of the Minister of Law as well as such other persons, if nay not exceeding two, as the Law Minister may appoint.

(1)

On the basis of the discussions, an amendment was drafted and the same was duly approved by the Ministry of Law & Justice by an opinion dated 26 September 2010. By the said opinion dated 26 September 2010, the Ministry of Law & Justice drew attention to the relevant Rules: Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963. A copy of the relevant Rules is annexed hereto as ANNEXURE-I. The relevant Rules in relation to the IT Appellate Tribunal, Recruitment of Members reads as follows:

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"4.

Method of Recruitment:

(1)

There shall be a Selection Board consisting of:

(i)

A nominee of the Minister of Law;

(ii)

The Secretary to the Govt. of India,

Ministry of Law (Department of Legal Affairs); (iii)

The President or the Senior Vice-

President of the Tribunal; and (iv)

Such other person, if any, not

exceeding two, as the Minister of Law may appoint."

6. It is in these circumstances that the proposal to amend the Rules was approved. The allegation that this is the only instance when the nominees of the Minister are placed in a Committee is false and a misstatement. It is also respectfully submitted that the amendment to the rules was made after following the due process. Further, it is submitted that the Finance Minister's intention was only to include Secretary, DFS, in the Search-cum-Selection Committee who was on the Committee constituted during the selection of 5hri C. B. Bhave in 2007/2008.

7. It is also submitted that the Search-cum-Selection Committee after scrutinising and analyzing the qualifications and experience of the 8

shortlisted candidates, unanimously placed Shri. UK Sinha first in the order of merit. It may be stated that the Committee that had been constituted for the selection of the previous Chairman, SEBI, had also placed Shri. UK Sinha first in the order of merit.

8. In the premises, it is respectfully submitted that the allegations made with regard to the amendment of the rule on 7 October 2010 has proceeded on a total misunderstanding and lack of awareness of the circumstances in which the Rule was required to and came to be amended.

9. The petition also states that the "notification dated 07.10.2010 which amends the constitution of the Search cum Selection committee" is arbitrary and is "patently illegal because it seeks to give unbridled power to the Finance Minister by placing two of his nominees in the Committee who would finally select the Chairman and the Whole Time Members of the SEBI." It also states that the nomination by the Finance Minister is the "only instance where the nominees of a Minister would be placed in a committee in this manner." It is respectfully submitted that the averments made are entirely incorrect.

10. It is therefore respectfully submitted that the Amendment

was

done on the suggestion of the Ministry of Law which had relied on the provisions contained in the Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963. The petitioners have not at all placed the correct facts relating to the amendment before this Hon'ble Court.

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11. The allegation that there was no requirement of experts and the persons were to be handpicked by an individual is misconceived and is denied. It may be noted that the persons in fact appointed by the Finance Minister were the then Secretary DFS, Mr. R Gopalan, (presently Secretary, Department of Economic Affairs,) and Shri Devi Dayal, ex- Secretary, DFS. Both the persons were fully competent to be on the Committee having regard to their domain knowledge and experience.

12. In regard to the selection of WTMs, it has been stated that the Finance Minister nominated Mr. B.S. Meena and it is mentioned that Mr. B.S. Meena happens to be the brother of MoS Finance. As far as Mr. S.K.Sharma is concerned, he was the then Secretary, DFS. Mr. Meena is an lAS officer who retired as Secretary Heavy industries with a rich background and experience in the field of finance. He was also the Joint Secretary, Ministry of Finance and Company Affairs,

Department

of

Revenue

and

Secretary

Expenditure/Treasures in the State of Maharashtra.

13. In the circumstances, it is respectfully submitted that the process for selection of Chairman/WTMs in SEBI was institutionalized after the present Finance Minister assumed charge of the Finance Ministry in January 2009. In fact: (a)

Prior to 2009, there was no statutory system in place for the selections of Chairman/WTMs of SEBI.

(b) The improvements made in the selection process include:

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路

.r--.

(i)

the establishment of a statutory system for the selection of ChairmanjWTMs of SEBI.

(ii) giving wide publicity to the vacancies to make the system transparent and to attract the best possible candidates. As a result, the vacancies were advertised in the three largest circulating English dailies in the country besides placing the vacancy position on the website of the Ministry of Finance and DoP&T. (iii) seeking the approval of DoP&T for the composition of

the Search-cum-Selection Committee. (c) The above steps resulted in the receipt of 19 applications for Chairman, SEBI, and 48 for WTMs and many of them were from the private sector and professionals.

14. I now tum to the second allegation with regard to the alleged malafides in not granting an extension to Mr. C.B. Bhave despite the fact that his consent had been obtained and despite the fact that the Finance Secretary had, on 8 October 2009, opined that his "performance was good." In this case the following facts are vital: (a)

On or about the same time that the Finance Minister

approved the Committee proposal in November 2009, serious controversies broke out with regard to the entire NSDL issue relating to the IPO scam during which period Mr. C.B. Bhave was the CMD of NSDL. The two-member "Special Committee" consisting of Dr. G. Mohan Gopal and Shri V. Leeladhar which had been appointed by SEBI to 11

look into the matter pertaining to the IPa scam that had led to a fraud of around Rs. 115 crores, had passed three orders on 4 December 2008. In the order of the Committee, there was a serious indictment of NSDL in as much as NSDL failed

in

inspection and

supervision of

Depository

Participants and its shortcomings in relation to the IPa scam. (b)

NSDL was directed to hold an independent inquiry in order to establish individual responsibility for various failures at their level. It may be mentioned at this stage that at the relevant time, Mr. C.B. Bhave was the CMD of NSDL. Mr. Bhave did not participate in the proceedings of the Board having recused himself but the Board withheld and did not release the orders, and this came in for widespread criticism.

(c)

PIL was filed for the release of the orders in the Andhra Pradesh High Court. Ultimately on 9 November 2009, the Board declared two orders relating to the NSDL in connection with the IPa and the DSQ as "non est" and decided to hear the matter afresh at the level of the full Board (without Shri C.B. Bhave). This gave rise to a huge controversy in the newspapers and articles appeared in leading financial papers as well as daily newspapers criticizing the action of the Board.

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(d) The Indian Express carried an article (which appeared on 10 November 2009) with the headline "SEBI set aside the order involving Bhave."

The Times of India carried an article

dated 18 November 2009 entitled "SEBI saved Bhave blushes Market Regulator Nullified Orders Implicating Itself in IPO Scam." A further article appeared in the Times of India on 8 December 2009 entitled, "Justice Verma slams SEBI move to shield Bhave." Copies of the some of the articles which appeared in the papers are annexed hereto as ANNEXURE II. (e)

Earlier a letter dated 8 April 2009, was received from Dr Mohan Gopal criticizing the action of the Board on the role of Mr Bhave, was also put up to the Finance Minister. This letter contained serious allegations in relation to NSDL and the role of Mr Bhave and the attempt on the part of SEBI as an institution to ring fence the Chairman despite his complicity. A copy of the letter annexed hereto and marked as ANNEXURE III.

(f)

A SEBI Board meeting was scheduled on 22 December 2009.

On 15 December 2009, when the file was placed before the Finance Minister regarding the NSDL issue coming up before the Board of SEBI, it contained some of the relevant documents including the Press Reports and the letter from Dr. Mohan Gopal.

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(g) In these circumstances, on 22nd December 2009 the Finance Minister being fully aware of the controversy with regard to Shri CB. Bhave, noted on file on that date that the question of granting an extension to Mr Bhave need not be processed further since the tenure was upto February 2011 and the appropriate time to move the ACC would be six months before the end of the existing tenure. This noting has been annexed to the petition (Annexure P8). (h) It is respectfully submitted that in the context of what transpired in relation to NSDL and the allegations made against Mr Bhave in relation thereto, the Finance Minster took a considered decision to keep the matter pending while at the same time not making any adverse notings against Mr. Bhave at that stage, keeping his candidature open. It is submitted that in the circumstances this was the most appropriate course of action considering that there was almost a year and two months for Mr. Bhave to complete his tenure as Chairman, SEBI. (i)

As stated above, SEBI Board met on November 09, 2009, and declared the two orders as non est. It subsequently met on February 02, 2010 and interalia concluded that it is unable to find any compelling evidence that can lead to finding that NSDL is guilty of the violations charged in the notice and accordingly disposed of the show cause notice.

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-.

G)

A Writ Petition was filed in the Delhi High Court against

the decision of the Board. Ultimately, an SLP was filed in the Supreme Court against the order of the High Court. The SLP came up for hearing (after Mr. U.K. Sinha took over on 18.02.2011). Counsel appearing for SEBI pointed out that the situation had changed as a result of which the matter was adjourned. On 28.03.2011 this Hon'ble Court passed an order asking the Board of SEBI to consider whether they would

reconsider

the

order/ report

of

the

"Special

Committee" dated 04.12.2008 with reference to NSDL/DSQ and pass an appropriate resolution. Copy of the order dated 28.03.2011 is annexed hereto and marked as ANNEXURE N. (k) Thereafter, at the hearing on 9.05.2011 before this Hon'ble Supreme Court it was pointed out to the court that SEBI had considered the matter at the 137thMeeting held on 26.04.2011 and resolved to reconsider the decision dated 09.11.2009 by which it had treated the orders dated 04.12.2008 in relation to IPO/DSQ of NSDL as "non est." It was also pointed out that it was further resolved that the Board would reconsider the orders with a view to accept the same "except the portion relating to SEBI which was passed ex parte." This Hon'ble Court clarified that on examination of the Report dated 04.12.2008 the "Sub-Committee" had not made any order against SEBIand that there was no need 15

to execute any portion of the orders. It was further ordered that since it had decided to reconsider the Report of the "Sub Committee" the matter should be listed in the first week of August 2011 to await the decision of SEBI on reconsideration. Copy of the order dated 09.05.2011 is annexed hereto and marked as ANNEXURE V. (1)

On 02.09.2011 SEBI filed an affidavit before this Hon'ble Court stating that at the meeting held on 28.07.2011 it was decided to accept and release the orders/report dated 04.12.2008 of the "Special Committee" for compliance by NSDL and it was also reported that SEBI had addressed a letter dated 28.07.2011

to NSDL calling upon them to

comply with the said two orders/reports. This Hon'ble Court had pointed out that the prayers in regard to the orders dated 09.11.2009 and 02.02.2010 did not survive consideration. Copy of the order dated 05.09.2011 is annexed hereto and marked as ANNEXURE VI. 15. It is a matter of consideration as to why the Petitioners who, in "public interest" espoused the cause of Mr C.B. Bhave, did not consider it necessary to make any reference to the NSDL controversy and to the various proceedings which have taken place in this behalf.

16. Another allegation is with regard to the extension not being given to the WTMs. In connection with the allegations made in the letter dated 1 June 2011 by Dr. K.M. Abraham and the facts relating to Mr.

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Abraham, it is important to place the following before this Hon'ble Court. (a) Numerous complaints were received against Dr. K.M. Abraham and Mr. M.S. Sahoo, Whole-Time Members, SEBI, from several sources. The complainants included several MPs. (b) The complaints ranged from abuse of power to corruption and purchase of flat at concessional rate from an entity that had benefited from the sale of office space to NSE which is regulated by SEBI and of which Dr. Abraham was a Whole Time Member (WTM) with the jurisdiction to decide on many issues of critical importance to NSE. (c) Though Dr. Abraham was working in SEBI and is a serving member of the lAS, he neither informed nor took the permission of the Ministry of Finance, which is the administrative Ministry of SEBI, when he purchased the flat.

Neither did he take permission of the DoP&T for making this transaction. (d) References were also received on the alleged links between Dr. Abraham, NSE and NSDL in the issue of the role of SEBI in trying to save NSDL from the IPa scam that had led to the loss of Rs. 115 crores. (e) The CVC and DoP&T had also referred a complaint received against Dr. Abraham from an MP to the Ministry of Finance.

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Several references were also made to CBDT, Chairman SEBI, CVC, etc. (f) Many newspapers also reported about the allegations made

against Dr. Abraham. Some of the references were sent to SEBI for their remarks. (g) All this while, Dr. Abraham was making efforts to obtain extension as WTM for another two years. Failing in his efforts, he tried to be the head of National Institute of Securities Markets (NISM) on the basis of a recommendation made by Mr Bhave. This recommendation was made by Mr. Bhave in violation of the rules under which a panel had to be submitted for the selection of Director, NISM. (h) After the Ministry of Finance took the decision to invite applications for the posts of WTMs, the advertisements were placed in the leading dailies of the country. The last date for the receipt of applications was 18th April 2011 and a total of 48 applications were received for the posts. (i) It is curious that Dr. Abraham started writing to various authorities complaining of alleged interference by the Ministry of Finance only after he knew that he may not succeed in getting extension as WTM and he lost hope of being appointed as Director of NISM. Accordingly, he sent a letter to the Cabinet Secretary on 16th May 2011 and a letter to the Prime Minister on June 1, 2011, barely a month and a half before Dr. Abraham's tenure was ending. In the above letters, 18

he alleged interference by the Ministry in the affairs of SEBI cases through the present Chairman, SEBI. Apparently based on this the petition also seeks to give an impression that the Ministry is interfering in the regulatory functions of SEBI. No person from the Ministry has tried to influence in any case or with the regulatory functions of SEBI. 17. The Petition mentions that in his letter dated June 1, 2011 to the Prime Minster, Dr. Abraham cited four alleged instances. In two of the instances (MCX-SX and Sahara) cited in the aforesaid letter, the Department of Economic Affairs was called upon to respond. The manner in which these two cases were dealt within the Ministry of Finance as mentioned below would clearly show that the Ministry on the contrary supported the regulatory autonomy of SEBI. 18. The manner in which SEBI has dealt with the above four cases has also been described by Chairman, SEBI, in his letter to the Ministry of Finance. A copy of the letter is annexed hereto and marked as ANNEXURE-VII. 19. The manner in which the Ministry dealt with the MSC-SX and Sahara matters is given below and it would reveal the falsity of the averments made in this regard by the petitioners.

MCX-SX Case (a) A letter was received from sitting MP, Shri Sushi! Kumar Singh, requesting interalia for the Government's intervention 19

in the matter of MCX-SX for issuing orders under Section-16 of the SEBI Act 1992 for MCX-SX to "operate in all segments of the securities market on par with NSE and BSE." (b) The Capital Market division of the Department of Economic Affairs of the Ministry of Finance, examined the request and submitted a reply for the consideration of the Finance Minister. The noting on the file reads as under: "after examining the response of the Regulator and the SEBI Act, it is clear that intervention under Section 16 of the SEBI Act envisages issuance of direction

on

questions

of

Policy.

According

permission to an Exchange does not fall within the ambit of Section 16." (c) The same was approved by the Finance Minister and a reply was also sent by the Finance Minister to the VIP. A copy of the letter is annexed hereto and marked as ANNEXUREVIII. The letter interalia stated that: "It may be noted that the order passed by the Whole

Time Member is a quasi-judicial order in furtherance to a direction of the Hon'ble High Court, Mumbai.

Moreover, this is a matter of regulatory compliance between the market regulator and the regulated entity and not an issue of policy. Therefore, you may appreciate that it may not be appropriate for the Government to issue directions to SEBI in the matter.

20

I am also enclosing SEBI's reply to the points raised by you for your reference."

In view of the above, the allegations made by Dr. Abraham that the Ministry was favoring MCX-SX is without any foundation.

Sahara Issue (d) In regard to the issue of Sahara which has been also raised at para (w) at page 13 of the Writ Petition, it is respectfully submitted that a reference each was received in the Ministry from the Secretary, Ministry of Corporate Affairs and the Prime Minister's Office. What was approved by the Finance Minister on file is as under: "3. Sahara Prime City Limited (SPCL) had filed a Draft Red Herring Prospectus (Prospectus) with SEBI for launching its IPO in September 2009.. On examination, SEBI found that the prospectus did not disclose the mobilization of funds by Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL) had undertaken. These two entities had reportedly raised Rs.40,ooO cr by issuing Optionally Fully Convertible Debentures (OFCDs).

4. In view of the above, SEBI requested for 路information on the raising of funds by the above two companies. But they failed to provide the required 21

information. On investigation, SEBI concluded that the OFCDs issued by them were in fact public issues and they should have had the clearance of regulator (SEBI). But, instead of providing the

relevant

information, SIRECL and SHICL questioned the jurisdiction of the SEBI to call for the information.

5. In view of the refusal of the group to furnish the information as requested, SEBI issued an interim Order on November 24, 2010 restraining SIRECL and SHIeL from mobilizing funds from the public. Faced with this ban, the former moved the High Court of Allahabad which stayed the order of SEBI implicitly giving the above two companies the freedom to continue raising funds from the public.

6. As the companies were not debarred from raising funds from the public, SEBI issued notice to the public cautioning them from investing on OFCDs issued by the above entities. SEBI also moved the Hon'ble Supreme Court which upheld the right of the regulator to interalia call for all information on the issue by the two entities. Nevertheless, SIRECL declined to furnish necessary information citing confidentiality privileges. The regulator thereafter moved the High Court to vacate the stay which it did

22

in favour of SEBI. Now Secretary, MCA, has raised the following issues. a. Whether any company can be forced to list their securities in the stock exchange? b. Who will regulate any unlisted company, which offers securities under private placement to more than 50 persons?

7.

As regards the issues at (a), when a

company floats public issue, it has to mandatorily comply with the listing provisions of Section 73 (1) of the Companies Act (the section requires public issues to be listed in the Stock Exchange after receiving approval of SEBI). It cannot escape this requirement under provisions of Section 73(4) of the Companies Act which states that "any condition purporting to require or bind any applicant for shares or debentures to wave compliance with any of the requirements of this section shall be void" meaning thereby that public issues have to be listed after obtaining clearance of SEBI. 8. As regards (b), when an unlisted company seeks to raise funds from 50 or more persons, it does not fall within the provisions of private placement under Section 67(3) of the Companies Act. 23

., Therefore, when an issue involves more than 50 persons, it becomes a public issue brining it under the regulatory purview of SEBI. 9. SHICL and SIRECL have not furnished any information to establish that the issue has been subscribed by 50 people or less to make it a private placement. On the other hand, the above two entities have refused to give details of the subscribers. In the absence of such information, and the refusal of the companies to substantiate their claim, the contention of the above two companies that their issue is in the nature of private placement does not have credibility.

10. The relevant issue now is whether there is any regulatory overlap in this case. Given the above facts of the case, the prospectus filed by SPCL is a public issue and not a private placement. SEBI has also contented the same. The matter is now also sub-judice. rr 20. The insinuation is that the Finance Ministry has tried to interfere with the same to favour Sahara Group is false. On the contrary, when the Sahara Group made a petition to the Prime Minister's Office and the matter was referred to the Ministry of Finance, the Ministry of Finance categorically supported the stand taken by the

24

.

SEBI and negatived the contentions of the Sahara Group. The Ministry of Finance supported SEBI's stand even on a reference made to it by the Ministry of Corporate Affairs.

21. Generally speaking, the statements made in the letter dated 1 June 2011 have been repudiated' by the Chairman himself. (The comments of Mr. U.K. Sinha, Chairman, SEBI, on the allegations made by Dr. Abraham are at ANNEXURE-VII).

22. The Chairman stated that Dr. Abraham also attempted to interfere with the implementation of the orders of the Hon'ble Supreme Court for reconsidering the decision of the SEBI Board which had declared in Nov. 2009, the orders of the Inquiry Committee in the IPa scam as non-est. Dr. Abraham was a member of the Board that took this decision and that he was "emotional and vehement" in telling Chairman, SEBI, "that SEBI board should stick to its earlier decision" despite the orders of the Hon'ble Supreme Court. Dr. Abraham had approached the Chairman although the former had gone on leave when the 137th SEBI Board meeting was held on April 26, 2011 in the light of the orders of the Hon'ble Supreme Court on March 28, 2011 in the matter.

23. It is also respectfully submitted that Dr. Abraham himself held Chairman, SEBI, in high regard and this is evident from the former's own public open utterances about the Chairman. After a conference on May 4, 2011, Dr. Abraham praised the Chairman and said: "The chairman has conveyed a beautiful message of a cooperative learning, friendly and bold organisation. I am simply amazed at the 25

kind of vision he has presented before you. I only envy you the people who would be continuing here to carry this vision forward."

This was less than a month before he wrote the letter dated 1.6.2011 to the Prime Minister.

24. The allegations made that any pressure was put to "manage any case" whatsoever or that the Regulator's integrity has been undermined are false, vexatious and defamatory.

25. It is submitted that unsubstantiated allegations were made in the earlier Petition against the Finance Minister. Though the Petition was withdrawn with liberty to file a fresh Petition deleting such allegations, they have nevertheless been maintained in paragraph 2(w) (p. 13 of the petition). The allegation in the earlier petition was that Respondent Nos. 2 and 3 had conspired in December 2009 to review the Orders of extension of the then Chairman and Whole Time Members of SEBI. The Hon'ble Finance Minister was respondent No.2 and the SEBI was respondent No.3 in the earlier Petition.

26. In the first place it is not known how it could be alleged that SEBI had conspired with the Hon'ble Finance Minister to review the Orders of extension. The correct facts have already been set out hereinabove in relation to non-grant of extension to Mr. Bhave.

27. Nevertheless, the irresponsible manner in which the present Petition is filed afresh can be seen from the fact that the allegation of conspiracy between Respondent Nos. 2 and 3 to review the orders of extension is maintained. Since the Hon'ble Finance Minister is no 26

.longer a Respondent, the allegation now reads as an allegation against SEBI and its present Chairman, who was supposed to have conspired in December 2009 to review the orders of extension - an allegation which simply does not make any sense. However, it is curious that the petitioners consider this aspect as being as worthy II

of investigation."

28. Similarly, in the same paragraph in the earlier Petition, an allegation was made that since February 2011 the effective control of SEBI had passed from the Chairman, SEBI and the Board to Respondent No.2 (being the Hon'ble Finance Minister). This allegation is retained but instead of reference being made to respondent No.2, the allegation now reads "in short, since February 2011 the effective control of SEBI" has passed from the Chairman, SEBI and its Board to the II

concerned persons in the Finance Ministry" .

29. The petitioners have claimed that the creation of the sub-committee of the Search-cum-selection committee was improper. The subcommittee of the Search-cum-Selection Committee for the selection of the WTMs was constituted by the latter in 2011 following the precedent in 2008 when the previous WTMs, including Dr. Abraham were selected. The constitution of the sub-committee was a decision of the Search-cum-Selection Committee and the Government had not directed that it be created. However, the petitioners have tried to portray this as a grave infirmity and have used it to make further allegations, have no basis.

One of the grounds on which the

petitioners have claimed that they have filed is due to the "wrongful 27

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presence of Shri Bimal [ulka, an Additional Secretary level officer of Ministry of Finance, functionally unconnected with SEBI." 30. In regard to the above issue, it may be stated that Shri. Bimal [ulka is

the Additional Secretary in-charge of Capital Markets. He was in place of the Joint Secretary, Capital Markets who was a Member of the Sub-Committee in 2008. The change was specifically made as procedurally it was improper to include Joint Secretary (Capital Market) as a Member of the Sub-Committee as WTMs are in the rank of Additional Secretaries. Therefore, the system was bettered in 2011 by avoiding the inclusion of an officer of a rank lower than that of the post to which recruitment was being made as a part of the interview panel.

31. In the premises it is respectfully submitted that there is no merit in

the petition and the same deserves to be dismissed with costs.

DEPONENT VERIFICATION

I, 1\mit BaflSal-;- working-as UnderSeeretary "in JlmaIlGe,

the deponent above named do hereby solemnly affirm and

verify that what is stated in the forgoing affidavit is true to my knowledge based on the records of the case and I believe the same to be true.

Verified at New Delhi on this 11TH NOVEMBER, 2011.

DEPONENT 28

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PUBLISHED IN THE GAZETTE OF INDIA, PART II SECTION 3 SUB-SECTION (i) DATED 27 th JULY, 1963 AND AMENDMENT THEREOF Government of India Ministry of Law and Justice Department of Legal Affairs New Delhi, 27 th July 1963

NOTIFICATION G.S.R. No.l265: In exercise of the powers conferred by the proviso to Article 309 of the Constitution of India and of all other powers enabling him in that behalf, the President hereby makes the following rules regulating the recruitment and conditions of service of persons appointed as members of the Income-tax Appellate Tribunal, namely:1.

Sbort title and commencement:. (1) (2)

2.

I 2

These rules may be called the Income-tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963; .

Rule 4 shall come into force at once, rule 3 shall be deemed to have come into force on 15t day of April, 1962 and 'the remaining rules shall be deemed to have come into force on the 151day of September, 1960.

Definitions:- In these rules, unless the context otherwise requires, (a)

an 'accountant member' means an accountant member of the Tribunal;

(b)

a 'judicial member' means ajudicial member of the Tribunal;

(c)

a 'member' means a member ofthe Tribunal but except for' the purposes of rules 3 (3), 3 (4), 8, [12 and 13 does not include the President; Senior VicePresident and Vice-President] I;

(d)

the 'President' means the President of the Tribunal;

(dd)l

'Vice-President' means Vice-President of the Tribunal;

(t)

the 'Tribunal' means the Appellate Tribunal constituted under section 252 of the Income Tax Act, 1961 (43 ofl961). .

Substituted vide GSR No.753 (E) dated 29lh December 2005 Inserted vide fi R Nn 4 -l.,t.. ,\ ,:;th . . . .

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Qualifications for Recruitment:(1)3

A person shall not be qualified for appointment as a judicial member unless:(i) he has for at least ten years held a judicial office in the territory of India; or (ii) 4[he has been a member of the, Indian Legal Service and has held a post in grade II of the Service or any equivalent or higher post for at least three years; or] (iii) he has been an advocate for at least ten years;

Explanation.- For the purposes of this sub-ruleÂť (i)

(ii)

in computing the period during which a person has held judicial office in the territory of India, there shall be included any period after he has held any judicial office, during which the person has been an advocate or has held the office of a member of a tribunal or any post under the Union or a State, requiring special knowledge of law; in computing the period during which a person has been an advocate, there shall be included any period during which the person has held judicial office or the office of a member of a tribunal or any post, under the Union or a State, requiring special knowledge of law after he became an advocate.

A person shall not be qualified for appointment as an accountant member unless:-

(2)5

(i)

he has for at least ten years been in the practice of accountancy

"" (a) (b) (c)

(ii)

. (3)

as a chartered accountant under the Chartered Accountants Act, 1949 (38 of 1949); or as a registered accountant under any law formerly in force; or partly as such registered accountant and partly as a chartered accountant; or

6[he has been a member of the Indian Income Tax Service Group' A' and has held the post of Additional Commissioner of Income Tax or any equivalent or higher post for at least three years}.

A person shall not be qualified for appointment as a member if:(i) (ii)

he is less than thirty-five years of age; or he is more than fifty years of age; provided that the upper age limit may be relaxed:

Inserted vide G.S.R. No. 576 dated 20 th June 1981 (Deemed to have come into force on and from the 1981).

3

4

lit

April,

Substituted vide G.S.R. No. 454 (E) dated 24th June 1999. vide G.S.R. No. 576 dated 20'" June 1981 (Deemed to have come into force on and from the 1" April,

5 Inserted , no 1 '\

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(a)

7[in the case of Government servants up-to five years in accordance with the instructions or orders issued by the Central Government;] and (b) in case of a person belonging to a Scheduled Caste or a Scheduled Tribe or to any special category specified by the Central Government, to such extent as may be specified in the general orders made by the Central govt. relating to recruitment of such persons to Government service.

(4)

No person'-

(a)

who has entered into or contracted a marriage with a person having a spouse living; or who, having a spouse living, has entered into or contracted a marriage with any person shall be eligible for appointment as member;

(b)

Provided that the Central Government may, if satisfied that such marriage is permissible under the personal law applicable to such person and the other party to the marriage and there are other grounds for so doing, exempt any person from the operation of this rule.

4.

Method of Recruitment:(1)

There

be a Selection Board consisting of:-

(i)

a nominee ofthe Minister of Law; the Secretary to the Govt. of India, Ministry of Law (Department of Legal Affairs); . (iii) the President B[or the Senior Vice-President] of the Tribunal, and (iv) such other person, if any, not exceeding two, as the Minister of Law may appoint.

(ii)

(2) (3)

(4)

7

The nominee of the Minister of Law and Justice shall be the Chairman of the Selection Board.

The Selection Board shall recommend persons for appointment as members from amongst the persons on the list of candidates prepared by the Ministry of Law after inviting applications therefor by advertisement or on the recommendations of the appropriate authorities.

The Central Govt. shall after taking into consideration the recommendations of the Selection Board make a list of persons selected for appointment as member;

Substituted vide G.S.R. No. 214 dated 12th January 1984.

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Procedure of selection:The Selection Board shall evolve its own procedure: Provided that where the suitability of the candidate is judged from his or her viva voce, each member shall evaluate the performance and award marks out of the maximum marks fixed by the Board. .

[Provided further that where the Selection Board is of the opinion that it shall not. be practicable to call all the candidates for the viva voce, it shall short list the candidates for this purpose by adopting such criteria which shall not be less than the following criteria(i)

(ii)

for accountant member (a) a member of the Indian Income-tax Service Group 'A' and has held the post of Commissioner of Income-tax or any equivalent or higher post for at least three years; or (b) a person who has for at least twenty years been in the practice of accountancy as a Chartered Accountant under the Chartered Accountants Act, 1949 (38 of 1949) or partly as such registered accountant and partly as a Chartered Accountant and has net Taxable income of not less than Rs.l,40,OOO/- (after allowable exemptions or deductions). for judicial member (a) a member of judicial service who has held a post of District and Sessions Judge 'or Additional District and Sessions Judge for not less than seven years; or (b) a person who has been practicing as an Adwcate for at least twenty years and who has net taxable income of not less than Rs.l,40,000/- (after allowable exemptions or deductions); or (c) a member of the Indian.Legal Service who has held a post a Grade-l of that service or any equivalent or higher post for at least three years; or (d) a person who has held judicial office or the office of a member of a Tribunal or any post under the Union or a State requiring special knowledge of law after he became an Advocate or judicial officer, having a combined experience of twenty years;

Provided also that in case of candidates belonging to the Scheduled Castes, the Scheduled Tribes and the Other Backward Classes Categories, the Selection Board may adopt such criteria as it may deem fit, but which shall not be less than the eligibility criteria prescribed under Sub-sections (2) and (2A) of Section 252 of the Income-tax Act, 1961 (43 ofl961) and rule 3]10. \

Inserted vide G.S.R. No. 283(E) dated 26 th April 2004.

10 Inserted vide GSR No.742 (E) dated 23'd f)eCi"mhPr ?oo'\

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Medical Fitness:No person shall be appointed as a member unless he is included in the list made under sub-rule (4) of rule 4 and unless he is declared medically fit by a Medical Board to be constituted by the Central Government for the purpose, unless he has already been declared fit by an equivalent authority.

6.

Probation:-

(1) (2) (3)

7..

Every person appointed as member shall be on probation for a period of two years.

The Central Govt. may in the case of any person extend or reduce the period of his probation.

At any time during the period of probation and without any reasons being assigned, such person may be discharged from service as a member.

The President:(l)

(2)

l1[The Central Government shall appoint the Senior Vice-President or one of the Vice-Presidents ofthe Appellate Tribunal to be the President thereof] The appointment of the President may be in an officiating or substantive capacity

7A 12. The Central Government may appoint from among the Members one or more persons as Vice-President or, as the case may be Vice-Presidents of the Tribunal to assist the President in the discharge of his functions.

7B

7C

u.

J4

•

The Seowr Vice-President: The Central Govt. may appoint one of the VicePresidents of the Appellate Tribunal appointed under rule 7A, to be the Senior VicePresident t h e r e o f . · .

Selection Committee to select President, ete.iThe Selection Committee consisting of a sitting Supreme Court Judge, to be nominated by the Chief Justice ofIndia, the President and the Secretary, Ministry of Law and Justice (Department of Legal Affairs), based on merit, shall recommend persons for appointment as President, Senior Vice-President and Vice-Presidents.

8.

Classification: A member shall be a member of the General Central Service, Class I (Now Group A), Gazetted unless he is a member of any other Central Govt. Civil Service.

9.

P ay l S:_ The pay of the 1.

President shall be Rs. 260001- p.m. (fixed)

Substituted vide G.S.R. No.283(E) dated 26th April 2004... th 12 Inserted vide G.S.R. No.4 dated 6 January 1973. th 13 Inserted vide G.S.R. No. 765 dated 24 May 1984.

14 Inserted vide G.S.R. No. 283(E) dated 26'" April 2004.'

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Sf. Vice-President shall be Rs. 26000/- p.m. (fixed) Vice-President shall in the scale ofRs. 24050-650-26000/- p.m.

16[Member shall be in the scale of Rs.22400-600-26000/- p.m.]

3.

4.

10.

Seniority:(1)

(2)

up.

Seniority of a member shall be determinedin accordance with the date of the list of persons selected for appointment as members made under sub-rule (4) of rule 4.

If two or more members are selected by the same list seniority of such members inter se shall be determined in accordance with their ranking in that list.

Retirement - The date of Retirement of,(a) (b)

the President shall be the date on which he attains the age of sixty-five years; the Senior Vice-President, Vice-President and Member shall be the date on which they attain the age of sixty-two years; and not the last date of the month as in the case of other Government servants.

12.

Retirement benefit:(1)

(2)

A member who, at the time of his appointment as member was holding a pensionable post under a Govt. in a permanent capacity shall be eligible for pension in accordance with the rules for pension applicable to him at the time of his retirement; A member to whom sub-rule does not apply shall be entitled to Contributory Provident Fund benefits in accordance with the Contributory Provident Fund Rules (India), 1962.

Provided that:(i)

(ii)

(3)

16

A member appointed in a substantive. capacity prior to the commencement of this rule and serving as a member at such commencement and a member appointed in a substantive capacity after the commencement of this rule but before the commencement of rule 4 may, if he was a subscriber to the Contributory, Provident Fund at the time of his appointment in a substantive capacity, elect, within three months from the date of publication of these rules in the Official Gazette, for pensionary benefits; and A member appointed in a substantive capacity after the commencement of rule 4 may elect for pensionary benefits within three months of his appointment in a substantive capacity.

A member shall communicate his election under Clause (i) or (ii) to the proviso to sub-rule (2), to the Accoupts Officer concerned with a copy to the

Substituted vide G.S.R. No. 786 (E) dated 26th November 1999 (Deemed to have come into force on the first day of January 1996),

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13.

Secretary, Ministry of Law, Department of Legal Affairs. within the period specified therefor, and if no communication is received in the office of the Accounts Officer concerned within that period, the member shall be deemed to have exercised his election to continue to subscribe to the Contributory Provident Fund, in which case he shall not be entitled to any pension.

Election once made under the proviso to sub-rule (2) shall be final.

A member recruited directly from the profession (Legal Profession or accountants profession) after the age of thirty-five years shall be eligible to add to his service qualifying for superannuation pension (but not for any other class pension) the actual period not exceeding one-fourth of the length of service or the actual period by which the age at the time of recruitment exceeded twenty-five years, or a period of five years, whichever is Jess, provided that this concession shall not be admissible to a member unless the actual qualifying service at the time he quits Government Service is not Jess than ten years.

Other Conditions of Service:The conditions of service of a member in respect of matters for which no provision is made in these rules shall be the same as may for the time being be applicable to other employees of the Govt. of India of a corresponding status.

[13A. Omitted.

13B.

Omitted.

ne.

Omitted.

13D.

Omitted.

13E.

The President, the Senior Vice-President, the Vice-President and the Member of the Tribunal shall not practise before the Tribunal after retirement from the service of the Tribunal.

13F.

The President, the Senior Vice-President, the Vice-President and the Member of the Tribunal shall not undertake any arbitration work while functioning in these capacities in the Tribunal.]19

14.

"Interpretation:-

.,

If any question arises relating to the interpretation of these rules the decision of the Central Govt. thereon shall be final.

,.

18 Inserted

vide G.S.R. No. 576 dated 20 th June 1981 (Deemed to have come into force on and from the 1st April

198 I) .

Inserted vide O:S.R.No.389(E) dated 3'd June, 2009 (Deemed to have come into force on and from th e. ,,'" June. 200Q)

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IPO scanuSelddismisses panel's adverseorder .

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irn order passing'strictures BS REPORTER • .agBinst,NSDL. Inboth the cas.1umbai, 9 Nove.:nber .. es, thepanel fora systems 8$ well as an ine Securities and Ex,vestigiition by NSD;L. . . . change .Board of India , 'The !PO scam, unearthed (Sebi) today dismissed in Mri1200S; involved dethe adverse commentsmade positories. including NSDL, against i,tby a-two-member lind committeein the initialpublic market operators; who aloffer (lPO) scam and the ir" iegedlY llillped e:nttties regularities noticed in case .\15\\ 59,00.0 ,demat acof DSQ Soetware in 2002, . ' "The findings against the . co!intstoget meantfor snialJ investors. " . : ' board are outside theconfines , 'IIi clI5eof DSQ S6ttWare, of delegation and therefore without the oflaw, the committee disposed pf a Hence, these orders are null , showClius'e noticeto NSDLim· pUtingtliatit had failedto pet- . and void," said the regulator; The sebi board,which met V Leeladhar.In a third case these with Se- formits duties. " ' today, howeveraccepted 'the . whereno adverse remarks had' W1;fu"5s . ,:The bytheinwUcbBhavelu:aded earlier. dependentoommrttee on Derecommendations of a corn- been made on Sebi'srole:. set up "In the IPO scam,tvepan- ,cember 4 were not made pubrnittee that had G Mohan " 'The committee Gopel, director ofNational Ju- after CBBhave tookceeras Sf-' elhad criticisedSebifor being . -'liethattimeas the,Sebi hoard dicialAcademyin.Bhopal, and bi chairmanand recusedhim' '"a passive observer'! anddis- ..'had certain reservations rethe thenRBI Deputy Governor, self from these three cases as po'?ed of the regulator's inter· gardingthem. '

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Financial Chronicfe : Mumbai

.Sebi panel disposes of NSDL case; A Sebi'iboard meeting took the decision to'dispose Mumbl1i of the order against NSDL . THE board of Securities' as per the legal opinion af路 and Exchange Board of In- ter the board felt "that the dia CSebi) ., sans its chair- orders (by;,the committee) man CB Bhave - on Mon- . went the. terms of day decided to dispose of reference, a Sabi statethe .controversial order ....rnent said.i Bhave did not against National Securities join the The IPO scam invesdgaDepository (NSDL) related to the Z005 IPO scam that tion of 2005 by Sebi, then broke . out when Bhave headed by M Darnodaran, had blamed, among others. headed the' depository.

NSDL for failing to detect rnulnple demat accounts being opened by manipulators to comer retail portion of the public issues.

The two-member panel set 路up to dispose of three quasi-judicial proceedings against NSDL said the Sebi board "failed as a regulator" while disposing of two matters relating to IPO irregularities and DS路QSoftware. rajesnabranam@mydignallc.com ,I

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Monday QilCJsied 1/18,flrji:li!lgs,

jhat into ihe2006 and decided to lookatresh into the'issue,per. laining.to tole Of NSoL

was headed tJy current.SEBI Chaim\an,68 boill>j).;. decidel;l tf.1a1: the ' bOard as a,whole ql)iirinen Bhave) would disponofthese two ml!llers ' said in Ul& board rneeting..:Chairman ' ,attend路Uie meetin,g,which daell/tenthe two' . orders rtdafingtolPQpregularft!es and DSq Software as 'r.on -es1' {Oat my dead).' " : The legal opinion, Y(hich,the bo2{d sought on the "repan,of1h'e commirtee; pointed'out !h:lt ' thelihdings 'wilhol,Jt ai!y aiJ1hli/iW 01 law", , ' ",' , ' TneSEBI board had sought Isgalopinien on the matter as ten fhat the ordeio'of the committee went beyond, the 1eims ol"referen:;e, The ,commil1ee inill:orders,relating ,to 111'0 irregularities and 01;0,softlrare held lhal !i'fe ' (SEBI) failer as aregulalor." The IPO scam unearthed in April 2006, involved , depositories, depo,nory participants and market operators, who illegedly ,used orhelped ' some entities use t 9,000 'liclnious demel accounts 10 corner shares meanHcr sma'il investors, ",

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However, "inthe interestof. Gopal dissenting) decided .that ' ,Mumbai,Nov,9' , transpatency"the two orders three 'non-whole time.memThe SEBI.Board on Monday (related to'the IPO scam arid bers would decide on,the apdeclared as "non-est" (non- DSQ Software.' Ltd) wIll be·pointinentofalegal.counselto existentin theeyesofthelaw) . 'made public, II news release examlne if the committee b.ad. two.ofthree orders passed last . fromSEBI said.' . ;. ',' acted within-the framework December by a specially conIn the multiple demat andrermsofreference. 'stituted .committee1.'O dispose accounts, were openedin the in AugUst the board consiofthe regulator's proceedings names of fictitious investors dered the legal opinion and against National . Securities allowing key Operators to cor- decided that tpe .o.{ Depository Lt4; , nerIPOshirts reservedforre- .the 'committee' against the.

This appears tohaveputthe tailinvestors:' '; . . , . board (namely, tliat it had SEBI proceedings. against ,The committee consisted of failed asa regulator while disNSDL (and against the SEBI Mr Mohan G'Jpal, Director. ci.f posing of-two matters relating Chairman, Mr C.B.Bhave, by National Judicial .Acadeuly; ,totheIP.oscamandDSQSoftimplication) on.the backbur- arid Mr V. Leeladhar, RBI re- '. wire) were outside' the conner,said legal expert;s. .,.. presentative' .at ' that . time.. fines' ,of .4elegation . and .

The orders of.the commit- Their orders of December ·"withoutauthorjtyoflaw'.' . tee contained adverse findings 2008werenevermadepublic, , "These 'which ,on N,SDL.iJi the IPO·scam that The usualpractice at S.EBI is have vitiatedthesetwoorders. came to lightin 2005. At that fororderstobeuploaded onits. cannot be severed froin the time Mr Bhave' was heading' Web site as soon as they restoftheorders.Hencethese NSDL. It was for'this reason passed. , .orders are null. III)d void and and to avoid conflict ofinterThe SEBI b laird decided to non-est," saia the:SEBI stateest thar SEBI had constituted. Withhold the irders as it was, ment, "It wasalsodecided that the committee andgranted it . divided on if the committee]. theboardas a whole (excludautonomy .to decide on h...l exceeded itsbrief. ' .. ingMr Bhave) would dispose NSDL's rolein thescam. ' In April the board(withMr ofthese twomatters afresh."

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.Two orders in HSDLcase·heldvoid

. committee:seen " '. . . . to have overstenped .. . . .

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'been the .. SecuntiesDeposllory·(NSDL) Since February2Oll8. NSDLhad been aecused'of neg}igenooma semi involved the &etting.uP QUake de. . .. mat. aeeeunts 'to,!ij)rper shares in sachiR P MamPattA. MumIlai initial public offe" (!POs).·. .

Earlier orders by S¢bi against the The Securities & Exchange Board o[ depository had been setaside by tpe India (Sebi)on Monday declared two Securities Appellate Tribunal. orders ·by a special.committee' es-' Since Sebi chairman:C B Bhave talllished by it to be and A was the head of NSDL when the third order pas!iedbythe same com- . scam waS.disCovered, the committee mittee has been released and is to.be.' was instituted so as to be mdependserved on'the affected parties. . entof Bhave. . .'

In August 2008, Sebi had consti- Three orders were accordingly tuted the committee to takeover and passed by the two-member commitdispose of proceedings tee in.December2008. In two of

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whicn was'neeessarg 0fIP the commitfee en· "C BBhave, chairman of Sebi. that Sebfluidfailed as did not participate' in these a regulato!: . " deliberations," said the release' by the regulator .

These'wereplalldbeforetheSebi . B!l8e4or' .the legal. opinion. meeting which. place in January 2009. and in subsequent meetSebt decided the committee's flndings in February and April. It was ..ings agaihst the regulator are withdecided that legal opinion would be . out .the authority of law. since it went .beyorid the confines oC its .sought to determine whether Sebi had the authority to examine the'. delegation: The two orders which enter such, findings have. hence working of tht! committee and . been held Lull. and void since the whether the committee "had acted within the framework and terms oC flndfngs cannot be severed from the reference" 'established by Seb!. ' . . rest of the orders..

Pendirig·that.Sebidecided-with also deejde.d that three non-whole The matters in the two orders .one member dissenting - to with- time members.woulddecide on the .' would be dealt with afresh by the hald the orders of the committee.It counsel and fmalisethe issues 01) . board, withthe exeeption ot Bhava ciders.

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'to iPo-'Irreguiarities and DSOSo1twareLtd.Thesefindmg.;againstthe board are outside the coilfines of delegation

, The committee, was set up by the '.

HESebi board on Monday declared Sebi as suggested by theFinance Ministry,. . '.' :.. . .' two orders Siven by a committee in had recommended that Sebi shl;)u1d issuepJ . . of law. These findiLgs. which have \i',tiated DecembeJfW08, relating to IPO ir- code of conductfordepo;;itoric;s. G Mobari ,';:-- .' two orders, cannot besevered from the regularities and DSQ Software, as ,Gopal and V Leeladhar.In their order, also. ' . ' . ..' resfoftheorders.HencetheseordersarenuU ",. and void and non-est;" Sebi said , ,.ul and void and are non-est (which means asked.the Sebi to ensure that an assessment Of an order [Jot served). The board as a whole, the. of the institutional. arrange- .

"In the inteiest of it :;Sebi) exclUding chairman.C B Bhave, would disment toensure the integrity of the deposi- . decided to make public tbe two non-est pr'; torysjstem., . ' . . .. : '.' '.. detsj"Sebi said in a release. However, the dlse of these two matters afresh, Sebisaid.. by the committee "Theboard had delegated its authority to . board has decided to release the order: - which was constituted by Sebi in August the committee to passed by.the same committee, relat ing to , 008- pertained toBhave's conflict ofinter- .ciaJpl'l)CCedingspending against NSDL. The Rajnarayan Capital Market Services Ltd; st on the proceedings related to the alleged committee entered findings tbat the board, . ." .." . witba direction that it be served ali .he at.. rvolvementof the National Securities De- failed as a regulator, while disposing of two, Sebl chalrm.n C B Bhave;: :'... . fected parties,

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-Sebi Jejeds. panel orders- The EconomicTlmas, Murribai

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Says Investigating Committee Exceeded Terms Of In 2' Out 3 Orders To NSDlOversight

set up after CB Bhave,lormerly . i··· AcademyaildV leeladl!M (fanner 'Thes'e.flndingS,which have the chairmanof NSDL,tookovern.a on the sebiboard),took· Vitiated these orders cannot be . reins at succeeding up thethree proceedingsperiding severedfrom the rest of the orders.: . M Damodaran·.againstNSDLas on February 18. ·Hence. these orders are null and void HESecurities and Exchange . ·Thethreeordersrelateto differem 2008, and conduded them videthree and are nonea;" the release said.

Board 01 In!fui (Sebi) board on aspects of NSDI:sl'Olein .

• separate ordas-dated . What had caused something ora: .

Monday disposed offtwo . orders relatingto the NationalSeeuri- what isknown as the IPOa l - . Decemher4, 2008-. controversy was that the order . "11Ie committee,howev- not pu\ up on the Sebi . latment sam; in ",blch tiesDepository (NSDL)passedby a sharesmeant forretail _CI; enteredfindlngs that the though the bench had submittedit Sd>i panel.as the boardfeltthat the committeedidnot act within the investors were comeredbya'

last year The Sebi . frameworkand terms01reference number of operatorswhC? wbile disposmg oftwomat- board bas finally deadedto make opened a large number of tersrelating to !PO public two orders. that were established by the board resolution. demaraccountsundertake . andDSQSoftHowever,the thud order in the TheSebi board, in itsrneenng in names.NSDLhas, denieq. ware. These findings against the matter afRajnarayan Capital .

Boardare outside the confinesof del- ,Market Services, will beservedon any negligence on its part, Augustlastyear.had constituteda committee oftwoof its members to

committee,comprising two egatiQli and; therefore, theseare affectedpanics sinceIt does lookinto three orderspassedagainst non-whole-timemembers Mohan. witho!ltJheauthorltyoflaw.· the riot have similarfindings, lhe !'ISDL by the regulator. The panel was Gopal, directorofNalionalJudidal Seblielease SebireJease said. '

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(IPO SCam: SEBlpanel I blames it on :N-SDLts Iaxity Our BureilU Mumbai, Nov.ll

. I1np'aid

The two-member committee appointed by SEBI to probe the NSDL's role in the 11'0 scam had faultr.d the depository for its failure in detect• ing the large-scalefraud that was present in a particular '.de.pository participant, unsatisfactory KYC system and the weakness in the data uploadingsystem.

However. the committee did not findanyevidencethat such failures arose from'any . on the part of the NSDL management.

The members of the committee .w.ere Dr (t Mohan Gopla and Mr V. Leeladhar.

The §EBl board 13l;1 declared the committee's.order non-est in

I}l the matter. ofDSQ Soft· ware. Leet, wher-ein one crore \ . :

allotted were' depositoPles to the transferred to allottces and interests of the investQrs .and delivered -in stock exchange ensure the orderly'developsettlement fkilitating· the ment of the Securities marunjust enri<imenc of the keto It is 110te J)romoter, order states thatthe Appellate til". NSDL dd not exercise Tribunal. while setting._ide due diligence. in' the orderof the adjudicating notifying the informati.on autnority levyinga penalty of c'ontents in corporate action' Rs crore on NSDL in information fotuin submlt- order dated ja!luary 14 did ted bythe issuer compjny as not lind' any illeg.lity .or lrits Registrar and regularity in the mainteAgents, while dernaterialis- nance of data base by NSpL .' ing the shares as per the in- while limitingthe role,Ofde \o1;itho4t verifyiJig pository to a cpJ1lPli,,"ce thecontentlf '. . with the not ac- issued by ::'.ZBI fiolll1h.P.e. to cepr N,SDL tp8t-'ti(n.I!. . ' '.', . of carl)'1pg order of out $e due 9i1igence in this tee notes :that d ..

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wealoiesses in· th¢ .Iuper-viwas of sicm,.iuspectlon an42.6 of tl. .!or n.ot cut a PJ!:}w. duty on the sures 10 sQ:c.,gt:}len it ,

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5ebisaYed "Bliav! blushes ,Mkt Regulator Nuliified Orders ImPlicating'ltself 'In I scain .

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a former head or. the s8curt· ties Appellate Tribunal (SAT),

ManCIl MItta ITJiN New Delb1: In its 17-year his

is reported1ytbefirst time that Sebi'sboIIrd basDUllifted quasi-judiCial orden of one of its own benCbea.nie orden, If iDlp1eu)ented, could have lel'ioualy its chairman C B for his aceountabWty in relation . to an earlierasslgnmenl UNDIR THE &LAIE:C PShave TheaI!1cIalIystated I'Ei8SOn for this extraordinary inter- countnt wasaccountable for , eeptioQ on November 9is that the bulk of the fake accounts. the two orden passecfon DeSoonaft2rBblMl took over cember., not spared as Sebi's cba1rman in Februeven Sebi for ita lecWatory failinp in theDlliIPO scam, dependent of two inwbtchtensoftbousanc1sof members to deal fake demat accounts had been with the three NSDIrreJated opened to corner the shares caaes, ina pub1icsbow ci manreserved for small ilWestors-V aging his conflict of These two orders were ae-· Havingsst on themfor 11 tuanypartof a&etoftbreeor- months, theboardpubUshed ders per1alntngto N&t:iona1Se- . the three onlenlast week "in curlties Depository Ltm1t8d the interest of transperency", (NSDL),which was headed by that too only after'nuWfying Bbavedurtngthe scam and,as two of them on the basis of f the biggest depository in the legal opinion obtained troD.

V

twonulWled«'ders, tbethird ordfirfoorecxlJl1Ill8l1deda·c;or· recttve JDllllS'Ul'lY. "charge sheets muatbe specJflc

as

.1IOS$lbIe, c1lll1riy ldent:Itying

the 'Jelll1atan:Wd violated and ,sett1nc outbowsuchviolation

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mayhave taken place."

'Ibus.what really setsaparl

Withdrawn lIJ1 order passed qujry "toestabl1ah tndiv1dual by alficel: But.responsibllity ... and to take even for that, Achlithan con- necessary action to ensure in.ceded that "the circum- dividual accountability· for stances leadirlg to such wiijl: such failure." 'J:he otdels predrawal are not known tome." scribeda time framed sixmoThoqgb tbe findings 8ga- ntha for the NSDL board to iDstSebihave 'been citedas the complete the inquiry and re port the follow-up action to .NSDL-re1atee,. orders, a close Sebi after three months. reading shows that even the . The onlyremaining memtb1rd ordtll; w,lIch hasbeen al- ber of the mdependent 0011;1lowed to Stand, criticised the mtttee that had passed the ulatoi:. M in the Case of the

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po.

. Achuthan.WhUe rscom· . the two niiWf1ed orders Jn8Ildlng the nuDmcation of the one that 'has apa.r:ed those.two NSDIrreIated or- Is theunstateli'P&rt¢the boaders. Achuthan cited a soli· rd'. decl8ion:thestrinIllDt ditary from 2006 rect10nto the NSDL boaiiito when SEBI had apparently conduct an independent In-

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. three December 2008 orders, dtrectorof National Judicial Academy Mohan Gopal, al>' stained in protest from the November 9 board meeting which null1f1edtwo of them.

Bhave too kept away.from the boerd Dieetinitiecause of his . confl1ct of interest. , I

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The TimeS"Of India, Mumta:

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Justice Verma slams Sebi, move to shield Bhave '. Mano) Mitta I THH

&rd'sdeCision to nl1llifythe orders

epinst NSDL.. that it had been

takel\on the . from an eXpertwhohimself hada confl1et or 'interest, For. C Acbu-

, New Delhi: Sebi's manoeuvres to shield its chainnaJ;1 C D Bbave frOIn liabUity'for the IPO scam

thail, former bead of

setback as former Chief Justice of India J S Verma . said that its decision to nullify ,two orden related to "via,!ates established legal and con- . i stitutional principles". . .

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JU5tice Verma's statement

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December 22bearlni before the Sebi titiQn with standmgtoseekre11etu board to decide afresh, in an unThe implication .this,isthat precedentedmove, tile two IPO theboardhadnoautbority to block scamcasespertaining to l3have's' thel>rders paIied on·Decem1;ler 4, earlier assignment as cbairman 2008 by the b)dependent bench of . of tbe National Securitles De: Mohan Gopal(dinlCtorofNation· pository Lbnited (NSDL). al Judicial Acadeny) and V LeeTb1sreview,ostensibly without ladhar (then depllty Bovemor Bbaw's participation, is a sequel RBI). 'lbeotders silOUlc1 bawclome to the equally unusual develop; into eft'ectimmed and coule .mant on November' 9 when the board, aftersittingon tbeJnb'owr P!'llate at the In11 months. null1flecl the two qua· stance of NSDL. All oft1ckU decisi·judlcial.orderspassed against sions are presuJJf'!d.tobll.val1d un· by a special bench consisttil set as1deot otl:3i'wisebald tobe lnB only of to inValid bY.8 cow·..of'competentJu; . avoid Bhave's confl1ct of interest. risdiction," be Sa'd,polntJnitotbe CritiCisingtbepower of lritercep- likelihood of Be' )1'8 elaborate er· tioillllisUnle!l by tbeboard,Justice . forts to save sltincoming Verma said. "TheSe quasi-judicial unstuck in the coUrts. There Is alorders may be reviewed only by a ready a PILrelatedto th:sissue in judiclal forumwlth requisite ju- the Andhra Pradesh high court. risdiction, at the instance of a PEl- Another 1nt1rn-; ,ty about the boo I puts a question mark

of

Secur1U··

es Appeu.te Trlbupal (SAT>. is B dir8ctor of NSE, which is QDeof tbepromotersofNSDL. In fact, its websit.eDllJ1ll!SNSDLasamember rI tbe "NSEGroup";In his 15-page opinion tenderedan June 3), Achu·

than made no mentlonOl biB 8SIlOciaijon with and even Jess so .or NSE's interest in,NSDL. Since bi.s opinion is cited as the basis of

itS deeis1cin, the Seblboard seems to haw landed in a fte&b Conflict

or interest controversy.

JUstice Verma expressed con-

. cernowrthemiiuseof theboard's executive power·to interfere with me quasi-judic:;ial function dele-

pted to8ebi be1)cbes. He stressed

tbeneed toensuretbat "exeCutiVe

poWer 1& not misuaed to interfere

with thelr'dec1s1on-maklng. their In.dependence and their tnt8&rlt}(" . The orders of the . benchbad orderedturther in9u1ry to fix lndividualliabl11ty atNSDL, which, as the bli8eSt depository In the countn\ waslI\StrWDe11tal In the open1ilg or tb,e bulk of .the fakedemat accounts opened duro ing the 2OO5IPO scam.

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'Move against: quasi-judicialorder a violation'

. Keena Zachariah ,MUMIW

To Declare 2Orders Ai; 'Joid Is'Meaningless', says Ex alJs Vanna ' ! '

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: J" umCEJS VlIIDllI. fODD, er-

oflDdla. has said tbattbe mmtdedsioD of the

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'lIOIi-est"'twoquaSijudidalonlm piaedby¢t:paoel .

comprislJJgtwo,-pan-1ime membm. GMohan GopalandV Leeladbarviolatescstablisbedlegal and c:onstitu1ioDal plindple$.

"These quasi-judidalordm may bereviewed onlybyaiudidal forumwlIbrequisitejuriSdiction, at .theinstaDceofapedtlonerwith standingtoseck'relld,'hesaidina ' stalemmtlssuedin publiciDtcast oDMonday....· Justic:e Yarma funhersaid: "'Ibe dedsiqn quasijudicWDtdm as'void' ismeaoiDg,

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' bodicslsfuDyprol«ledandthal .. excai1ivellQWCrisnotmisused to . with their dedsiori .Quasi-)udiciaI orders.s!' UI be I8VIew onlyby , making. diciriDdepcodenccand ' IaWfuIIJ auIhortBed.:.Iiunats or bycourts. bailld lII'I thcitiDtegrity,'Justice Verma said. ' III 1IIbt..... .qcIpIes ........, 'It Is toepsure thatqua.'* ._pn. sijudidal QIders shauId. DOt be subject tormewormte:rferencebyex. . '. . . CCUlive aU1boritiestbatbave letsinanyabsolutc senSe. Its ' Mobandas lJaL ex- .neither1be powernm:tbe re9uisite meaaiDgis relative. depeadiog . ,dudiDgc:halIman pI·Bbave, will alter orn'ulIify upootbecolUttwi!JiDsnessto disposcOfull!cucrelatiDgtothe

grant rdieflnany paniaJlar NSDL a Scbi stateml'J1t Quasi-judicial orden shouldbe situation. ...¢.:isionis 'vI: d' imlcd..rtct)helast subjectto reYiewooly by Iaw1ully or a 'nuDily', it ImlaiDs 10being 'inNovemlxTsa!d, ' :authorisedtrlbuDaIs orbycourts, 'UuJess andUDtiJ somestepsare tak- ' nie ckdsion of the SC!biboaid is basedOD weU-est,libIished eobeforecowtstobaveltdedami pIiDdpksollaw;:hesaid. void.'.

Adlutban.lormerpresidinJofIiccr ' Am1tta1mp'iiremeDtfor TheopiDioriby Jt1stice .Vanna of the Securlties upboldiDg the ruleoIlawis that ci:lmesat a time wbm1he sebi (SAT). , , ," there sbQUId Dqt beauyexecutive bom:d Isscheduled tOmeel on ' 'Gmltcaution is l31Ied foron " interlerence in theindependence

22. 2009,which is ' t4e pin of.the govetm!1Cnt, the aodlDtegI1tyoftbejudldal apeetedtobecbalmfbyTv

process;'JusticeVarma said.

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Credibility issues Sebi should hove handled NSDL case better tel clear the air .

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t is now three years arid eight rr..IO;'rhs. since the Securtties and Exchange Board of India (Sebi) u:nearthed the initial public offering (lPO) scam. which saw manip ilators openmg thousands.of fietitiouSlbenanu demat accountsto cor'ier the shares reserved for smallInvestors in public issues.Sebiblamed-the tWl:rdejlOsitories - NadonalSecuritiesand Depository (NSDL) and-CentralDepository ServIces (CDSL) and scores of deP9Sitory participant) for their faIlul'e to detect the malpractice. Things havemoved since t ten, with everyc>ne Involved more or lessfading from public memory lifter admitting thet;- failure and complying withthe orders. ButC B Bhave, the then chairman and managing directorofNSDL and the presentSebichairman,chaJIenged the.orderand wenttothe Securities Appellate Tr:Il- mal (SAn. Theissuehas been since made out as a clash of personali: es - between Bhave and M Damodaran, the then Sebichief. Bhav insistedthat $terns and processes NSLJL were foolpro, o , Later, whr I Bhave took Sebi chiet: the .. government ring-fenced him from the Investigatiol.lS and asked a panel comprising board members G Mohan Gopal, who i:'1 director of National Judiciary Academy and VLeeladhar, the then RBI governor, to examine and dispose of the NSDL cases. To Bhave's discomfort, the committee upheld the Sebifindings, which were kept out of the public domain for nearly a year. Now, a panel consisting of three non-whole time members has decided to dispose of the quasi-judicial proceedings against NSDL saying it was"null and void and non est". TIUs is in line with the opinion given bylegal counselC h;huthan, a former presiding SAT officer. Butattempts to brush the issue ! mder the carpet areinviting criticism . and could erodeSebi'scredibility. A: formerchief of India J S Ver. rna.forinstance, has termed the reei }N oforders !:iy qUasi-judicial bodies as a clearcaseof"misuse" of execunve power. "Great caution Is calledfor on the part ofthe government, thejljldiciary and society to ensure the independence of quasi-judicial bod;.es is fully protected and that executivepoweris not misused to interfet) withth$ decision-making, their independence and their integrity," he.has said. Surely, no one - not even Bhave's worst critics - would say he has colluded withunscrupulous' elementsin the IPOscam. In fact, i1 goesto Bhave's cr;edit that during his stewardship, Sebi has become mon, transparent accountable. Bhave had himself flagged the issue of the proceedings against NSDLwith the government before his appointmentas Sebichiefbut wasprevailed upon to take up thejob.The next boardrFeeting of Sebi (slate<!路 for this monthend), which will be chaired byT V ohandasPai, director oflnfosysTechnologies, is expected to dispose of t路 Ie NSDL But the issue is unlikely .o fadeaway in r h'lrry. As pc nted out Verma. "Even if a decision is 'void' or a 'nullity', it re.nams in being unlessand until steps are takenbefore courts to have it declared VOid."There are other issues, too. Achuthan is on the board of NSE, of which is an associate company, so there rrlI.ght be a case of conflict of All this could damage the credibility of Sebias wellas Bhave. could have been. handledbetter, and surely the first one to admit thiswould be none other than Bhave himself.

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eventually set aside Sebl's order that penalized NSDL and another depository" Central Depository Services (India) Ltd • ApI1I : The Securities and ExchaOge Board ofIndia (Sebl) uncovers ascam Involving depositories, (CDSL), for negligence In cleposltOry participants and market opmtor, whoaI\egeI. 'y played a role InUSlng 59,000 fictitIoUs demat opening demat accounts. accounts In cornering share allotlnl!nts ininitial public off!IS(IPOs) meant forsrnallinvestors.

"We have consldered ...the • 2l NO'lf.mber. Sebl ordelS National5ecuritles DePOSitorY Ud(NSDL), Central Depository Services (India) specific charges...and find Ltd (COSL) andeight depository partIcipants todisgorge Rs1l5 ((Ore for carelessness inopening demat that ...none of the charges can be accounts In theIPO scam case. said to have been established," :1,. I" : ".. " J \ ,I . , ' , ' . ',' • :':'j>" . '. . , '.:"' ; said the SAT order, signed by

• "', . presiding officer N.K.Sodhi.

•.".: The regulator decided to seek an Independent legal .• 18FtbluIrv: NSDL chairman and .." jirector c.a. , have takes charge asSebl chairman. opinion on the committee's 10- .

• 5 MaodI: Bhave recuses himself from 5eb1's proceedings agalnst NSDL at his firstboard meeting. cus standi after the committee The board appoints a panel, headed by Mohan GopaI. dlrector, NatloniJI.ludldal Academy, tooversee chairman Mohan Gopal told proceedings againstNSDL I

the media that Sebi was illegal• 13AugustSebl board defines therole ofthepanel, asking Itsmembers totake over and diSPOse Iy Withholding the order. of thequasi-judIcial proceedings against NSDL Sebi referred the case to former SAT presiding offlcerC. • 14Ottober: TIle committee hears NSDL Achuthan for an Independent • 4 DecenIIIer. The committee passes tlvee orders IntheIPO scam case. Itsays hall failed to meet legal opinion, but there was no appIicabll! legal standards ontheduties and reSllOflslbllltle1 of depoSltot1es.lt also directs NSDL to . development on this front till conduct anIndependent enqulry toestablish Indivldualliat :lity.

September when a writ petl· tion was flied in the Andhra Pradesh high court by V.

Narayan Reddy, an investor.

Reddy appealed to the court to declare the Sebi move of withholding the panel's 4 De'.., ili.M 6ri Iiilidde&fetttKifwo-orifeIs asiroIti;nd void cember order as "arbitrary". 'henft e'5f lil'tllf'ews'at.IaW). ft WlD'il1ItIilll!ftesh llllthlslnafter.' " .. " .. , .. . , He also alleged that Sebi willingly suppressed this order, enabling NSDL to win its ap• Sebi boardwllrhear NSOlatTesli. Gopa)lSbei 19 InVite(\for tnHtl;.g.Bnave wlUstay waY. peal at SA.T In January.

SelII ¥IdMint Reddy also alleged in his pet tion that "Sebl does not have IPO SCAM the jurisdiction to review the,. quasi-judicia) order passed by a committee comprising memo bers of the Sebl board".

Finally, in November, Sebi . published the panel's orders on its website but declared two of them-relating to NSDL-null and void. The Sebi board felt that "the orders (by the committee) went beyond the terms hearing before the Sebi board, which these orders were set aside by- of reference", a Sebi statement wUl be headed by Monandas the Securlties Appellate Tribu- said. Sebi also said the commitafter Sebl declared two Pai, a director of Infoa,..Tech. nal, or SAI, that hears appeals tee exceeded Its brief by makofthree decfslons by nolgle. Ltd. Bhave. has bren against Sebi. ing comments on deficiencies special committee null staying away from the be'l td The commtnee, consisting of in the working of Sebl. proceedings to avoid any :)0- two Sebl be...rd members MoAt least one legal expert has and void in Nov tential conflict of Interest: • han Goplol and V. Leeladhar,ln criticized the Sebi move as unhave no comments on the' is- 'December 2008, passed anor- tenable on the grounds that

By N. SUNDARESHA sue: Pai said. . der directl.ng NSDL to conduct the orders of the special comSUBIAMANIAN I< The critical hearing cot,)es internal enquiries and fix indi- mittee cannot be set aside b)' KHUSHBOO NARAYAN after Sebi declared two of. he vidual responsibility for the the board and are still valid. three decisions of a spe :ial lapses that aUegedly aided the According to r.s. Verma. forMUM8AI mer chief Justice of India, Sebi committee that was set fPO scam.' ndia 's capital markets reg- look into NSDL's role in It had also said that Sebi had cannot simply declare the orulator, the Securities and scam as null and void in l'io- failed as regulator" while der of the Mohan Gopal-V, Exchange Board of India vember and said the matter disposing of matters relating to Leeladhar bench as null and (Sebl), will 'on Tuesday take a will be heard afresh. the fPO irregularities and de- void and the orders will confresh look at the suspected inThe case has a chequered materiillzlttlon of shares of tinue to stand. unless chalvolvement of National Securi- history. The fPO scam inve'li- DSQ Software Ltd. In the DSQ lenged in a Judicial forum. ties Depository Ltd (NSDL) in a ganon of 2005 by Sebi, tl" sn Software : dematerialization Market participants will 2005 scam involving Initial headed by M. Damodaran, I- ld case, too, ;NSDL was allegedly closely follow the Sebi board public offerings (fPOs). . Indicted, amon« others, NS.lL Involved. J meeting but none of them is Some market participants for falling to rnulttj.le Inltially,Sebi neither imple- willing to talk on the matter as used 58,000 fictitious demat demat accounts being opened mentedthuse orders nor made it has quasi-judicial implicaaccounts to corner share allot- by manipulators to corner them as its board felt tions. Moreover, it involves the menU meant for retail inves- shares in public Issues meant that the panel had exceeded Its .regulator. There are two government nominees on the Sebi tors in the scam. for retail Investors. terms of reference.

Current Sebi chairman C.B. It penalized NSDL along In Januacy 2009, Sebi coun- board and in that sense it has a Bhave was heading NSDL at· with a few other market inter- sel did not mention the order sayan what happens in the that time. mediaries and even called fora when the NSDL appeal came closed- door meeting.

NSDl. will present its case revamp of its management, but up for at SAT, which

CASE FILE

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Sebi.holdshearing 0'11 Il'Oscam as REPOfl'TER

Ltd (NSDL) in the IPO scam of .. .. ·Details ofthe hearing could not},e ascertaiDed last month, 'neSecurities '. Board of India (Sebi)bad a Sebi had dismissed tberecoJ;Dhearing today on the centro- made bya commit. versialissueof the role of the tee in two of three mattets.med Naljonal'5ecwities Depository on the subject.

Mumbai. 22December

.

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loc!ke<j into NSD£S rolein the NSDl. Thescam,unearthedin SCi m. It set up after C BApri12006: depositoBl;.lw SebiChairman ties, 1IISD1., despos. am:t:ben.recused hiD;Ise1ffrom itory participants lU1d.market . . bellling Cases; as he' wbo allegedly helped hallheaded NSDL .. some use 59.000.fictiIn the IPO scam, the com- tious demat accounts to get mittee hadmpped both Sebi and' )

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Mint Mumbai Sebi order on Nt 'SL

in Jantary t\ Mumbai: TIie SecuritleS ahd Exchange

Board ofIndia (5ebi)is exPected topass itsorder on the alleged Involvement of NatlooaJ Depository Services Ud (NDSl) In the initial public offer OPO) scam In

January.

On Tuesday. theSebi board heard , NSDL Sebi chainnan ca Bhave stayed ' away from the meeting toa'lOid any conflict ofInterest ashe WiU路 heading NSDl at thetime ofthe scar ,t ASebi board member told ""Int' the hearing Is over and the memi)ers will have one meeting sometime 10 January before passing tile order. lASlCARe

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, Sebi holds fresh .hearing in IPO. scam

.MoveTo Stir Debate As Spl COmmittee HadAlready Passed An.Order In The ,case laSt Year,

c.1 whoareexduiledbytheCPnl1ict of The sd>i board's dcdsIoDto aver-

IUIc the commwe afresh isvieW· HE bpard ofthe Securities elias W1delD)Iningilsown priDdples , . and ExChmge Board ofIndia . ofconJliaofln1qeStmecbanism.

•....

(Sebl} on 'Ibesdayhelda .

11le boaid has no power to

tendyprotes1lngapiDstthe . mriewflsownorderandany. alSecuriliesDepositorys ( N S D L ) r e g u l a t O l ' s d e c i s i o n tointerlere in diaIlenge igall1St the lqilimacy of role in the PUQUC share . quasi-judiCialproceedings. stayed theorderbasto beinitiatedeither alIounentscam dUring 200.3-2005. awayfrom themeeting. ., in appealor byway reviewby The moveislikelyto stira debate '11;JeSebiboardaetedOlltbebasis the highcourt.'says folDler 5ebi within legalcircles. ronsldering. .ofanopini<)ngive'n bY10nner executive dii'eQ:ot-Jcgal affairs . that aspecially ronstil\1ted commn- members G Mohan Gopal and V presidingofliCc:rofthe·Securllies.. SandeepParekh.now a visitingfacteehadalrtady passedan orderin 'Leeladhiir- hadbeen setup to . ApelIate'lnblmalCAcbutban.lnd- ulty at.1ndiai1 Iilstitutt of . . the we last year.1becommittee preventa con1liQ: of interestsince dentally.Mr Corpo- . , had directedNSDLtoC;X>nduetan SebidwmwlCQ-Bhavewas' me LawChamben. ofwbich be ls a .

fonnerlythe chairinan ofNSD:-'. . seniorpannu.badrepreSented " independentenquiryand fix fOlDler CbiefJustice 01 India. had . indiY\diJalresponsibilitiesforthe 1\1esday'smeetiDgWilsdlainiby.Katvy-anaetusedlntbesbare said thatthe dedsionofthe Sebi boardto nullify two quasi-judidepositorys faIluie t6 meet its legal ITMOhandasP T ' alIo!DlCIltr;qm-against5ebi... dalordersViolatedeStablisbedlegai duties andresponsibilities. . andmemberoflhemanagemcra' pointl!dot.tafomiersebiboard Thetwo-member committee team ofInbys. and wasalsoattend- member. ThIs. he said. representS a" and constitutional .: comprising part-timeSebl edby wbole:lime membersof sebl. . c:onflietofinterest. . •

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intms'tmcch;>.'lism establiWdby .the ieartodral with cases . involving aamfliaoflnterestoftbe· dlaInnan.5ebibcaidmemberG .

Malwl Gopal. whobasbeen a:insIs-

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Sebi board 路 hears'NSDL case afresh "

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VYASMoHAN

The board is also lea rnt to have corporate governance issues

THE Securities and Exchange' Board of India (Sebi) on Tuesdayconducted ahearingon the National Se.curities Depository (NSDL) issue to reviewthe earlier decision of a Sebi committee of non-wholetime board members to dis- milafide'intent. In normal pcse ofthe orderagainstthe cases, thesame authority releading depository. The . viewing the same order may . bar" is also learnt to have not be legally approvable." discussed 'issues relating to . said a former official with corporate governance. , . Sebi'slegal department.

In its investigatlomi into There was no official' statement on the outcome' the initi,al' public offer of the Sebi board meeting (IPO) scam of'2005, Sebi on Tuesday. Repeated at- .had castigatedNSDLfor its temptsto contact one ofits failure to "detect multiple whole-lime members demat accounts' on the proved futile, The board, same name, which were chaired by Infosys Tech- used to appropriate shares ' nologies director Mohandas meant for retail investors.

Pai, is expected to, .an- While all involved parties nounce'us final decision in admitted to their lapses, the the. next board meeting. NSDLheadedby CB Bhave S.ebl chairman CB Bhave appealed to the Quasi-judiabstatned fromthe meeting, cial body, SAT, as it said due "It can be interpreted in diligence was the responsitwo ways. Appellate provi- bility of the depository par- , sions haveit that thoughany ticipants, who open demat order canbechallengedonly accounts, and not the deiIi the Securitiesand Appel- pository which maintains . late Tnbunal, in-housere- the data on these accounts.

Views are permissible in cer'The tribunal had then ;. t..1:ln cases like material mis- servedan interim order;askrepresentation 'or say Sebt to conductaprobe,

2.:3 . / 2....· .'

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, The Hindu Busil'\ess'Line. Mumbal

reserves , decision.ln ', OurBureau Murnllaj, Dec.22

The SEal board on'TuesP8Y sat f fresh on the NSDL case relat·ng to the IPO scam 'of 200E andgavea hearingto the depc ;itolY on. itS .suspected role 'in thecreatlonof fieritiPJ.1S demataccounts. . .

The.board wUl take.adecision rnd'Pi.9san·order later, said S ' ..Th· : case assumes significance as the scanipeitains to. a periiJd C. Chairman SEBI, wa:s heading ". " . ". , he took.over'the reins at SEBI earlylast year, the regulator's . proceedings agaiQStNSDL were entrusted to a speCial committet). This in. December 2008 passed three orders containing adverse findings on NSJ;)L in the.PO·scam. Italso that NS[ ',shouldconductan enquiry to. establish ind ividuaJ JiabW ty in the case. had consisted t f Mr Mohan Gopal, SEBI B'.,!Il'drnember; arid Director c:(N1ltllilnalJudicial Academy, and'Mr v. Leeladhar, RBI representative at SEal at that time, However, the SEBI Board this November de. clared as "non-est": (non-existent in:he eyes of the law) twoof thI, three orders. »More I the Web; WWW.bw...l\e$$line;i11/

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'Former ([)irectot, !J{ai':iDnaC£trw ScfwoC of1,.a14 Vaiwrsity, tBa.rroalore

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April 8, 2009

CONFIDENTIAL Dear Mr. Chawla, I write to convey my deep 'concern about serious violations of the SE13l regulatory system. The credibility and effectiveness of SEBI are at risk. At a time when effective': financial sector regulation is widely emphasized globally, the Government is exposed to needless embarrassment.

The main issues of concern are summarized beJOII'. , '

__

First, in order to suppress findings of NSDL faih, res, three quasi judicial SEBl Orders pertaining to NSDL activities during Mr. Bhave's tenure as ;its Chairman are being illegal(v suppressed for I.rJio"I ...t. over four months now without being implementec 'or made public. These Orders were issued by ,.- J I - the Committee of Members (consisting of the representative of tae RBI on the SEBI Board and I)

4r- established by the SEBI Board {at the initiative .cf the Government of India) "to take over and

, dispose of the on-going quasi-jur'icial proceedings" against NSDL . The purpose of appointing -T· the Committee to undertake this task was to ensure that proceedings against NSDL would be ",... handled in an independent manner ring-fenced from the Chairman, the Whole Time Members and J..4.. the representative of the MOF who was- involved in Mr. Bhavc's appointment. The three quasi Orders, dated December 4, .2008, broadly find that NSDL failed to meet its statutory

lS'" obligations and ask for independent inquiry to establish any failure and develop corrective action: ,..kA. With knowledge and complicity of Mr. Bhave and the MOF representative on the SEBJ Board,

the Whole Time Members have illegally taken possession of the three quasi judicial Orders ,without any legal authority to do so and are their implementation and publication.

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Second, rules specially established bv the Board ,» hal/die conflicts of interest of the Chairman

are being violated in letter and spirit by the Chairnan, the Whole Time Members and the MOF , ... ..-.J,frepresentative on the SEBI Board. the four individuals from whom quasi judicial and judicial )r.tc.. LIo'I proceedings involving NSDL are to be ring-fenced (including the Chairman, see above) are in r .fact, in one way or another. actively involved in and controlling these proceedings whereas the Committee formed for this purpose is being ignorer' and attacked.

I . ,..

IB1

(u-t)

clear indication of the willingness of the Chairman to disregard the conflict of interest and his keen desire to take control of the decisions ,)f SEBI against NSDL pertaining to NSDL activities under him, with the knowledge and ap; roval of the Chairman, draft minutes of the February 2, 2009 meeting of the Board were circulated to members on March 24. 2009. in which it was falsely stated that that Board had Chairman to take all actions necessary to implement the decisions [relating U NSDL and CDSL]. with consequential changes as may be warranted, of the Board." (sic) No such decision had in fact been considered or taken by the Board of Members. .

Third, these three Orders are being sought to be brought up to the Board and countered so as to favour NSDL, although Board review of SEBI Orders is contrary to SEBl rules and unprecedented. It is well settled law that review power cannot be implied. it must be expressly

,

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:131

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conferred. The SEBI Board has nc power to review Orders. Any Board power to review or modify Orders must be established through a well considered generally applicable framework approved by the Government and nude publicly available. It cannot be invented in an ad hoc manner to favour the Chairman in a conflict of interest situation. Ad hoc Board intervention in independent quasi judicial proceedings to favour one of the parties would raise much suspicion and undermine confidence in SEBI's quasi judicial proceedings.

..

Fourth, SEBI staff and managers are refusing to -ppeal to th-= Supreme Court against a January 2009 SAT verdict in which SEBI lost to NSDL, a though the SAT verdict raises important issues of law. ' The only argument so far offered in support of these unauthorized acts is tha' the Committee has purportedly.exceed its mandate because the Orders speak to SEBI's role in relation to the !PO scam and make recommendations for SEBl actions to strengthen the regulatory system. This argument is contrived and baseless. In its pleadings in the adjudication, NSDL had extensively cited SEBI approvals of its actions as a defence to :he charge that NSDL had not met its statutory obligations. The Committee therefore was oblige.I to deal with SEBI's role as raised in these pleadings and to record as well as make consequent recommendations for consideration by the S,EBI Board (e.g., that SEBI should establish a Code of Conduct for Depositories). Further, the Committee's comments on SEBI are by way of路路"t 1iler - the real issue is whether the directions issued by the Committee exceed it; mandate. No question or doubt has been. raised in this regard.

[ request the Government of India to ask SEBI to (i] forthwith obey the due process of law and immediately implement the three Orders issued by the Committee by serving them on NSDL and posting them on the SEBI website, (ii) appeal to the Supreme Court the January. 2009 SAT Order against SEBI in relation to NSDL; (iii) ensure that the Board of Members does not conduct a review of the Orders which it has nco legal authority to do; and (iv) ensure that the conflict of interest rules established by the Boad of Members are fully obeyed in letter and in spirit. The Government may also wish to consider reconstituting the Board because, in my view, SEBI, led by the current Board, is no longer capable ofdealin : tndepeui-ntiy and impa..tially with NSDL. a leading depository required to be regulated by SEBI. WlCh kind regards, \

.

01

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...

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I

Mr. Ashok Chawla. Secretary, Department of Econo nic Affairs .,'

,

v'

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;

!SC

SECTION XIV

COURT NO.3 SUPREME

C 0 U R TO F INDIA RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (Civil)

/2011 CC2801/2011

(From the judqement and order dated 29/09/2010 in of The HIGH COURT OF DELHI AT N. DELHI)

ACTION FORUM FOR MANAV ADHIKAR

WP No. 6621/2010 Petitioner(s)

VERSUS Respondent: (s)

UNION OF INDIA , ORS. With I.A.No.1 (C/delay in filing SLP) Dar-e: 28/03/2011 CORAM

This Petition was called on for hearing today.

HON I BLE MR. JUSTICE It. V. RAVEENDRAN HON'BLE MR. JUSTICE A.K. PATNAIK

For Petitioner(s)

Mr. Prashant Bhushan,Adv. Ms. Pyoli,Adv.

For Respondent(s)

Mr. G.E. Vahanvati,Attorney General Mr. Pratap Venuqopal,Adv. Mr. Surekha Raman, Adv .

Ms. Namrata Sood,Adv. M/S. K.J. John & Co.,Adv.

UPON hearing counsel the Court made the followinq OR D'E R The Securities & Exchanqe Board of India (SEBI) to consider

whether

order/Report with

its

of

its

reference

to

resolution

and place

Board

Spacial

re-consider'

CoZllJl1ittee

NSDL/DSQ +t

will

bet'ore

dated

and

pass

this

Court

the

4.12.2008

appropriate for

further

Court

stands

consideration.

The

costs

awarded

by

the

Hiqh

deleted.

Adjourned by four weeks.

( O. P. Sharma ) Court Master

( M. S. Neqi ) Court Master

.

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HO. 31

SEC'l':ION X:IV

COURT NO.3 SUPREME

:I:

. .

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!

S1I

'COURT" OF :INDIA RECbRD OF PROCEED:INGS

Petition(s) for Special Leave to Appeal (Civil) /2011 CC 2801/2011 (From the judgement and order dated 29/09/2010 6621/2010 of The H:IGH COURT OF DELHI AT N. DELHI) SOCIAL ACTION FORUM FOR

No. .....

Petitioner(s)

ADHIKAR

WP

in

VERSUS UN:ION OF INDIA , ORB.

Respondent (s)

WITH I.A.1(With appln(s) for c/delay in filinq SLP) Date: 09/05/2011

This Petition was called on for hearing today.

CORAM: HON'BLE MR. JUSTICE R.V. RAVEENDRAN HON'BLE MR. JUS'rICEA.K. PA'l'NA:IK For Petitioner(s)

Mr. P:cashant Bhushan, Adv. Hs. Pyoli, Mv.

For Respondent (s)

Mr. G. E. Vahanvati, AG

Mr. p:t'atap VenuqopaJ., Mv. Surekha Raman, Adv. Mr. D1J.eep P., Mv. Mr. Anuj Sarma, Mv. Hr. Varun Singh, Mv. Hs. Sood, Adv. H/ s , x. J. John , Co., Adv. H••

for

UPON hearing counsel the Court made the toJ.J.owing

o

On

R D E R

this

Court

made

the

following

order: "The Securities 6': Exchange Board of India (SEBI) tp:., consider whether its Board will re-consid.er the order/Report of its Special Committee dated 4.12.2008 with reterence to NSDL/DSQ and pass appropriate resoJ.ution and. place it betore this Court for further consideration." : In

pursuance

considered the matter

of

the its

137

same, cb

the

SEBI

meeting

heJ.d

has on

...... 2.

\,

- 2 -

26.4.2011 and resolved to reconsider the decision dated

by which it treated the reports dated 4.12.2008 of the sub-Committee in respect of IPO/DSQ of NSOL as non-est. It has further resolved that it would reconsider the order/aeport of its sub-Committee dated 4.12.2008 with reference to NSOL/OSQ with a view to accept it except the portion relating to SKSI which was pas8ed. ex-parte.

9.11.2009

On examination .of the report8 dated 4.12.2008 of the sub-Committee, we find that the sub-Committee in its order dated 4.12.2008 has not made any order, much alone ex-parte order, aqainst SESI. It has only made certain 8uggestions/recommendations for the consideration by SKSI .IAl fact, being a sub-Committee of SBSI, the question of the said Committee issuing any direction does not Therefore, there is no need to exclude the suqqe8t:S:.on8 by the sub-Coaau.ttee from consideration. Be that .s it may.

As the Soard hns decided to reconsider the reports of the sub-Commi,ttee dated 4.12.2008, list the matter in the firllt weeli. of Auqust, 2011, to await the decision of SESI on such reconsideration .

(Ravi P Court Master

. ( :jNeqi ) Court Master

....

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IN THE SU?REME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.7659 OF 2011 [Arising out of SLP(C) No. 25547/2011] (CC No.2801/2011) Social Action Forum for Manav Adhikar

...Appellant

VERSUS Union of India & Ors.

_Respondents

j

, 8erIIfIcld to be 1N0 IOIW ORDER At I t

.m

" ,....

s.

Leave granted. Heard.

2.

SEBI,

5.3.2008 Committee

the

second

Reg_I!!; i

.f â&#x20AC;˘.r(r ..-

Coon

respondent,

by

0' lrJt!iie

order

dated

(as amended on 13.8.2008) appointed a Special to

oversee

the

conduct

of

all

proceedings

initiated by SEBI against NSDL in regard to its role in certain

irregularities.

In

that

behalf

the

Special

Committee submitted three separate orders/Reports dated 4.12.2008 in regard to NSDL' B complicity in regard to (i) IPQ scam (ii) DSQ Software Ltd. and (iii) Rajnarayan Capital Markets Services Ltd. SEBI, by orders 26.8.2009 and 9 0.11. 2009 accepted the order/ report of the Special Committee

in

Services Ltd,

so

far

as

Rajnarayan

Capital

Markets

but held that the orders/reports of

the

Special Committee with regard to IPO and DSQ were nonest. SEBI also resolved that the entire matter relating to NDSL would be exami.ned afresh.

3.

Thereafter, the SEBI Board considered the matter

and made two separate orders dated 2.2.2010 reqardinq the¡ role of NSOL re'larding IPO and PSQ and held that there was no evidence to show that NSDL was guilty of any

violations

charged

and

closed

the

proceedings

aqainst NSDL.

4.

In

regard

in

Committee

to. the order/report

regarc

Services Ltd., which filed

by

disposed of

NSDL.

to

Rajnarayan

the

Capital

Special Markets

accepted by SEBl, an appeal was

Securities

of

Appellate

Tribunal

the said appeal by order dated 22.6.2010

expunging certain advevr ae observations against NSDL from the said order, with

consent of the learned counsel

for NSDL and SEBl.

5.

The

appellants

litigation before the Delhi

,

a

filed

public

interest

Court for quashing the

orders of SEBl dated 9.11.2009 and 2.2.2010 as also the order dated 22.6.2010 passed by the Securities Appellate

I

Tribunal. The said writ petition was dismissed by the High Court by the impugned order dated 29.9.2010. said

order

is

challe:lged

in

this

came

up

appeal

by

The

special

leave.

,'"c

6.

When

this

matter

on

28.3.2011,

this

Court directed SEB! to consider whether its Board will re-consider Special

the Orders/Reports dated 4.12.2008 of its

Committee

appropriate orders â&#x20AC;˘

. ,

with

reference

to

NSDL

and

pass

...

When the ma t t.er' came up on 9.5.2011, the learned

7.'

Attorney General appearing for SEBI submitted that SEBI had considered the mat.cer , at its 137t.h meeting held on 26.4.2011 and resolved to reconsider its decision dated 9.11.2009 by which it treated the orders/reports dated 4.12.2008

of

(pertaining

the to

Special

lPO/OSQ)

committee

as

regarding

non-est.

It

had

NSDL

further

resolved that it would .reconsid(;r the Orders/Reports of '\,

its

Special

Committee. dated 4.12.2008

regarding NSDL

with a view to accept it, except the portions relating to SEBl.

Having conaadee ed the matter,

8.

this Court noted

(

that the Special COmmittee had not issued' any directions or

orders

against

SEBl,

suggestions/recommendations for

but in

had

only

regard

the consideration by SEBI,

to

and that

made

certain

functioning, the

Special

Committee being a sub-Committee of SBBI, the question of the said Committee issuing any direction to SEBI did not arise and,

therefore,

there was no need to treat the

suggestions as directions,

v

or exclude or expunge the

suggestions by the Special committee. matter

)

was

adjourned. to ,,

enable

the

Thereafter, SEBl

Board

the to

reconsider the 0z:ders/neports of the Special Committee

l'

.dated 4.12.2008. .-"

,.-r.j"'tJ.......

9.

..

,,)

SEBl has now filed an affidavit .: . ,/'¡' " __

I.

)

.â&#x20AC;˘,,......... r,........

stating that at

its meeting dated 28.7.2011,

it has

tecided to accept and release the Orders/Reports dated ","

â&#x20AC;˘â&#x20AC;˘ 12.2008 of RSDL.

the Special Committee for compliance by

In pursuance of

letter dated 28.7.2011

SEBI has also addressed a

to NSDL calling upon NSDL

to

comply with the said two Orders/Reports. In view of the the prayer in the PIL in regard to orders dated

Bame,

9.11.2009 and 2.2.2010 of SEBI,

will not survive for

consideration.

10.

What remains for consideration is the challenged

to the order dated 22.6.2010 passed by the Securities Appellate regard

Tribunal

to

the

in

the

appeal

filed

dated

,

by NSDL,

4.12.2008

in with

reference to Rajnarayan Ct'.pital Markets Services Ltd. The Tribunal, by order dated 22.6.2010, observed that it was satisfied that no prejudice had been caused to the beneficial owners of the depository participant, namely, Rajnarayan

Capital

Markt3ts

Services

Ltd.

whose

certificate of reqistration had since been cancelled, and

in

the

interest

of

expunged the observations

the

securities

market,

it

in the impugned order, in

so far as they were adverse to NSDL.

11.

Learned counsof for .the appellant submitted that

the Orders/Reports

dated 4.12.2008 with reference

IPO/OSO have now been accepted,

to

that the Order/Report

dated 4.12.2008 in reqard to Rajnarayan Capital Markets

..

was accepted by SEBl on 26.8.2009;

Services Ltd.

therefore the direction of remarks

against

NSDL

in

and

the Tribunal expunging the the

order

4.12.2008

dated

relating to Rajnarayan capital Markets Services Ltd. was not warranted.

12.

We

find

that

the

order

of

the

Securities

Appellate Tribunal is not a reasoned order, in so far as the direction to expunge the remarks against NSDL. In fact, SEBI

the Tribunal has no-red that as the counsel for and

NSDL

had

Qqreec.

that

reasons

need

not

be

recorded for expunging the remarks against NSDL it was not recording reasons. In the changed circumstances, we are

of

the

view

that

a

reasoned

order

would

be

necessary. The order of the Tribunal cannot be sustained in the absence of reasons.

13.

In view of the above, this appeal is allowed in

part.

The

public

interest

litigation

filed

by

the

appellant in so far as the Jhallenge to the order of the Tribunal dated 22.6 2010 is

set

aside

and

the

matter

is

and the said order remitted

to

the

Securities Appellate Tribunal for fresh consideration in accordance with law. It is open to the appellant to get itself impleaded as the s-econd

in the said

appeal before the Tribunal and assist the Tribunal. In so

far

as

prayers ,

relat:>.ng

9.11.2009 and 2.2.2010,

to

order

of

SEBI

dated

tr.e Public Interest Litigation

....

is disposed of as having be,ome infructuous in view of the subsequent events.

. ..•..•....••..•••..••.• J .

[ R.V. RAVEENDRAN ]

NEW DELHI SEPTEMBER 5, 2011

....•.......•..•......• J . [ A.K. PATNAIK ]

...

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3JU:I"/H

U. K. Sinha

mt

SECURITIES AND EXCHANGE BOARD OF INDIA

Chairman

SECRET OCW 21953/2011 July 8,2011 Dear Shri

This refers to your letter dated June 21, 2011 and subsequent MoF 'reminders dated June 29, 2011 and July 05, 2011 in regard to the representation sent by Dr. K. M. Abraham, Whole Time Member, SEBI.

My comments (13 pages and 13 Annexures)

III

the matter are

attached.

Yours sincerely,

U. K. Sinbao

Encl.: As above.

Shri R. Gopalan Secretary Department of Economic Affairs Ministry of Finance New Delhi -110 001.

,

'l=fCFT, tfifc:"fi.m 4-l!,

"J1t" ffi'fq"

: 2644 9003 •

: ch.lirman@sebLgov.in •

- 400 051 .•

2644 9999/40459999

:

SCSI Bhavan, Plot No. C4-A, "G" Block, Bandra Kurla Compex, Bandra (E), Mumbai - 400051 .• Tel.: 26449999/40459999 Fax: 26449003. E-mail: chairmen@sebi.gov.in. Web: www.sebi.gov.in

".....-- ."

Comments on the letter dated June 1, 2011 from Dr.K.M.Abraham, Whole Time Member,SEBI 1.

Let me at, the outset state th,:tt allegations regarding semor officials of Ministry of Finance, with

'the knowledge of the Finance Minister,

influencing the quasi-judicial and investigative functions of SEBI during my tenure so far are completely baseless, motivated and are an attempt to tarnish the image of the Government; apart from being a malicious attack on me as Chairman of SEBI. \ Certain instances have been given in the letter dated June 1, 2011 andI will deal with each one of them in the following paragraphs about how the factual position is different and how no influence has been exerted, no compromise has been made with the existing system and process and how e"en the decisions which required Chairman's approval were done on the specific recommendations of Dr.Abraham in files.

2.

Functions of SEBI and its process:

2.1

Having said that, I am also constrained to point out that in the past there are instances where the course of investigations or outcome in quasi-judicial matters have been changed by senior functionaries inside SEBI.

For

example, action has been taken in the NSDL matter in such a way that the Hon'ble Supreme Court of India has expressed disapproval and has asked Copy of mail from

the current SEBI Board to reconsider the same.

Mr.Pratap Venugopal, SEBI's;路Counsel before the Supreme Court saying "Hon'ble Court during the hearings was not comfortable with SEBI Board making its own committee order non-est" is at Annexure I. Copy of news item in Indian' Express dated! February 22, 2011 reporting the concern expressed by the Hon'ble Supreme Court is at Annexure II. It is also important to understand that SEBI's responsibilities include protecting the interest of investors, maintaining strict surveillance over the market, draw

..' "..- - . ,._.-._-,--_

---- - . ------.---,..---

-..-

up regulations and in cases of misconduct or misdemeanor take up quasijudicial and investigative actions. These functions have been delegated to Whole Time Members (WTMs) or to the Division Chiefs (Des). SEBI has to notify policies and draw regulations as per the policy to govem various activities.

The difference between policy objectives and individual quasi-

judicial actions have to be properly understood.

2.2

There have been cases where, in the larger public interest, SEBI has revised its regulations or taken a view which was inconsistent with then existing regulations and it has gene to th.: extent of amending the regulations so as to deal with the special class of cases before it.

As an example, one can

"jJ

cite the Temasek-GfC case of Singapore where the Indo-Singapore Economic Co-operation Agreement had to be implemented, in the disinvestment process of PSUs certain special regulations were made only to suit the PSUs or where regulations were changed to implement decisions of the Government to give Depositories the Central Record Keeping agency functions under PFRDA. There Is always scope for confusion in the minds of people whether it is an individual quasi-judicial matter or a policy decision taken in larger public interest.

I have no reasons to believe that

wherever findings ofjunior officers have not been accepted and modified in an investigation, there was any rnotive behind the same. But to imply that Chairmen of SEBI wert; not aware of the course of investigation, the quasijudicial orders - including consent orders, in important and highly discussed cases like IPO scam, NSDL, ADAG consent orders etc. is not correct.

3.

My approach tp work in SEBl.:

3.1

My effort in SEBI has been to build capacity, provide contemporary knowledge and awareness to the employees, improve surveillance and

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------' .. --- .. ---

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investor awareness, simplify procedures, bring the regulations and enforcement actions to the best possible level and to give SEBI the status of a venerable and respected Regulator.

3.2.1 Before my coming to the SEBI; while it appreciated for a number of landmark functions performed !by it, it was also under various negative . perceptions - both before the media and higher judiciary.

Some of the

analysts and writers had even given me an for immediate disposal.

The same included .T alan Committee Report, Take-over code, arbitrariness in SEBI's enforcement orders, decline in mutual fund sales, geographical concentration of trading and lac1f of competition. Some of the high profile investigative or quasi-judicial l11.}l.tters such as Sahara, MCX- SX, RIL, etc. have also been highlighted in various media articles (copies enclosed as Annexure III). As head of the organisation, I am answerable to several constituencies including public at large.

It was, therefore, imperative on

my part to equip myself with basic facts and chronological developments related to all the issues before

I must have taken more than 100

meetings so far with various senior executives and held intensive discussions with even junior most team, on matters as diverse as risk management in derivatives

ana

cash markets, secondary market issues,

lack of geographical spread, cash market volumes coming down, lack of uniform KYC in the securities market, lack of consistency and uniformity in SEBI's enforcement actions, disclosure in IPO forms not being very friendly to retail investors, issues in mutual fund distributions, transparency in disclosure on fund performance and other several micro issues. 'In all these matters, I have asked for briefing notes or presentations. Even when a visitor comes to call on me, I ask for brief notes - whether it is a Citi Bank Global CEO or a Deutsche Bank Country Head. My office sends requests to concerned officials in SEBI to prepare the briefing notes (some

."

examples are attached as Annexure IV).

Even in high profile media

commented cases, I have asked for brief on facts and chronological developments. These are more for equipping myself with knowledge about these cases and at no stage have these briefs been shared with anyone outside SEBI or used to decisions in SEBI. But some of these briefs have given me a very good perspective of areas of improvement .and policy changes inside SEBI and J have already initiated the same as will be bome out in subsequent paragrapf1s.

3.2.2 To give an example, for the first time in the history of SEBI, I asked a research study to be done analrsing the orders passed by Whole Time Members and by Adjudicating Officers. We found that in cases of orders '.

I'

'

passed by Whole Time Members, in similar type of cases, while one member has passed orders for suspension in 8% of the cases, another one has done it in 0.5% of the cases and the third member has passed suspension orders in 25% of the cases. Similarly, debarment order has been passed in 50% cases by one member, in 75% of the cases by the second member and in 0.4% of the cases by the third member. The quantum of suspension order passed also varies vastly from member to member. In quantum of debarment orders, it:varies from 50% to If3rd to 1/6th when the period of debarment of 2 years to 5 years is calculated. In cases of corporates making misleading announcements, debarment has varied from 6 months to 2 years to 5 years. Similarly, in orders passed by Adjudicating officers, there is a widy.variation. For ego in cases of non-compliance of summons cases, the amount has varied from Rs.I lakh to Rs.20 lakhs. It must be underscored, however, that different cases may have different facts and circumstances and uniform slab cannot be prescribed but a wide variation unaccompanied by sufficient reasons gives the impression to the outside world about arbitrariness and subjectivity. I have emphasised that

') the same should be avoided andquasi-judicial officers should be sensitive 1

about the outcome and the need to maintain equal treatment in similar cases.

Any good enforcement action must have some element of

predictability with regard to similar cases based on quantum and degree of offence

.; , 3.2.3 Consent:

Consent is another area where there is a prevailing perception that it is subjective, provides an escape route to offenders and the quality of orders is not high and is not transparent. While I have publicly defended the decisions of consent proceedings which are legal and as per law and is practiced in many advanced jurisdictions, I do feel that there, is a need to bring in uniformity and

. All these efforts on my part may not

have gone well with everybody in the organisation but by and large the officers have appreciated my commitment and drive to improve the system in SEBI. I advised the executives to have more clarity on when consent orders can be passed or cannot be passed, how to improve the quality of orders, how to improve the drafting and to provide training to our officers so that the quality of their orders can improve. I presume that all these are efforts to improve systems and; procedures within SEBI and are my legitimate responsibility and cannot be counted as interfering or 'influencing the investigations or quasi-judicia) responsibilities of a delegated authority.

3.3

My address to the staff

After about 2

l/2

working of SEBI,

mOTJ,:13 of my efforts to familiarise myself with the getting feedback from staff, outsides experts and

industry associations and players, I took an unprecedented measure of addressing the entire staff in SEBI through a direct talk which was web cast to outstation employees.

The main message that I gave to the staff was

".

r-,'

how SEBI has matured over thr last two decades, how we need to further improve o-irselves to meet w.th the emerging challenges, update our knowledge, have a spirit of introspection and enquiry, not to develop cynicism or have a reluctance to change and how they need to co-operate

themselves and not work in silos. When I made this address on

Ma/,4, 2011, Dr. Abraham proposed a vote of thanks. Video recording of both my talk and Dr. Abraham's vote of thanks are available.

From the

transcript of the same, it will be iound that he said, for example "Chairman has conveyed a beautiful message of a co-operative, learning, friendly and bold organisation. I am simpy amazed at the kind of vision he has presented before you. I only envy you the people who would be continuing here to carry this vision forward ... " The full transcript of his speech is enclosed as Annexure V.

3.4

In his public statement on May 4, 2011 while addressing the employees, or in his notes dated May 25, 2011 to me and other members of SEBI Board calling for an agenda item to discuss harassment of SEBI members by the Government, he has not even once mentioned any of his grievance about me or my alleged interference in his quasi-judicial functions.But strangely, within a week of writing that note regarding calling a meeting of SEBI board, he has changed his stance and made assertions about me as Chairman, SEBl

4.

The facts on specific instances' qnoted in the letter: The background in which briefng notes were asked for in a vast array of matters is covered in Psra 3.2.1:! I will now deal with the specific instances cited in the letter

.'

I..

_

"'-'.

4.1

Sahara:

The matter in its quasi-judicial was with Dr. Abraham. However, there was a case going on in tbre Lucknow Bench of the High Court and before the Hon 'ble Supreme Court arising out of the interim order passed

by Dr. Abraham in the past. The point made in the letter is that when the Hon'ble High .Court vacated the stay on SEBI's orders, I discouraged him from issuing public notice and allowed him to do so only in the website of SEBI.

A copy of the note from Dr. Abraham is enclosed as Annexure VI.

Dr. Abraham had recorded "Draft notice on our website for kind approval". '

On the same, I had written "as proposed". As such, it is a figment of \ imagination that he had proposed a public notice

newspapers and It was j

III

toned down by me to .be only on the website.

The facts speak for

themselves.

Finally, inthis case order has.been passed by Dr.Abraham on 23 rd June 2011 and going by the analysis by legal experts or by media reports, nobody can draw a conclusion that any favour was shown to Sahara or that they were able to influence the decision.â&#x20AC;˘ On the contrary, on May

zo"

2011, the Chairman of Sahara Parivar wrote a letter to me that his team is making a presentation before Dr. Abraham snd that I should be present on that occasion. I flatly declined 'it and told Dr. Abraham.that this is a quasijudicial matter before him and I have no interest in being present in the hearing or discussions. Copy ofthe letter and my notings on the same are at Annexure VII. He seems. to have conveniently forgotten all these developments.

4.2

MCX SX: There IS no quasi-judicial matter pending in SEBI right now regarding MCX SX.

Dr. Abraham had passed an order last year declining '7

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'

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I

.

---

permission for MCX SX to stalft trading in segments other than currency derivatives.

The petitioner has gone to the Hon'ble Bombay High Court.

In the petition, MCX SX has under oath alleged, amongst others, bias in the mind of Dr. Abraham and that they have also complained against \ Dr.Abraham to CVC.

111

this background, the Executive Director (Legal),

Mr. J. Ranganayakulu was uncomfortable in getting the affidavit cleared

only at Dr. Abraham's level and wanted me to look at the affidavit to be filed by SEBI before the Hon'ble Court. The media report titled "SEBI hardens stance in its reply in l';I1CX SX case to Bombay High Court" is enclosed as Annexure VIII. As such, to allege- that SEBI's position has been t.

compromised

or something

Iunusual

has happened

is

completely'1

misconceived, false and not borne out by facts. The matter is still with the Hon'ble Court. It is also to be u;lderstood that this is not the first time that an affidavit has been looked' into by Chairman of SEBI.

There are

examples in sensitive matters or matters of public importance where affidavits have been shown to ,fthe Chairman before being filed. In any case, the stance in the affidavit is very clear as quoted in Annexure VIII. 4.3.Reliance IndustrieslReliance ADAG:

Before my joining, SEBI had passed consent orders in January 2011 against Reliance ADAG entity imposing settlement charges and restraint. same had been widely reported

i,n the media.

The

It was in this background,

that when briefs were put up regarding Reliance Industries Ltd., I discussed the background of how and in. what manner the settlement amount was arrived at in ADAG case and whether any consent petition has been filed in I RlL case or not.

Except· for the brief which came to me through Dr.

Abraham, I have not seen .any passed any orde.rs or any direction} The matter still with the WTM and to the best of my] .

to any employee.

knowledge no final deciSIon hasbeen taken so far.

."

.,

•.•....•• -

"'----"'0-""

__

_

-_._-.-.

__

.-

.

.,T 4.4

Bank of Rajasthan:

In . case of Bank of Rajasthan.\. there was- a request from ICICI Bank regarding listing of shares of the promoters of erstwhile Bank of Rajasthan after its merger with ICICI Bank, Dr. Abraham recommended that there are no prima facie violations by entities holding majority of these shares, differential in prices haves been paid and case in Supreme Court has also been withdrawn by ICICI and as such listing of these shares in the Stock Exchanges may be permitted. 'he note given by Dr. Abraham is enclosed / , as Annexure IX. He has specifically recommended for the same and it was ) approved.

At no stage, the file regarding the main hearing or the [mal

outcome in the matter has reached my level and to say that pressure was exercised on quasi-judicial matter is completely false and out of context.

5.

Possible causes:

5.1

For the last one month or so, itis being noticed that Dr. Abraham is under severe stress and tension. He appears to be suffering from an insecurity complex which has got aggravated after some media articles regarding CBDT probing certain properties purchased by him and by Mr. M.S. Sahoo, other Whole Time Member.

5.2

He took the unusual step of circulating a note dated May 25, 2011 to all members of SEBI Board containing an agenda note for consideration in the Board and for passing the draft resolution. He pressed me for inclusion of the same in the next meeting and I told him that a view on the same'would be taken by SEBI Board based on its rules and regulations. He was not satisfied and has even sent a reir.inder to all the Board members. However, the entire content deals with tis perceived harassment at the behest of a corporate entity and at the instruction of certain officials of Ministry of

.......-

"Q

Finance mentioned in the note. Regarding the allegation of irregularity in purchase of flats by Dr. K.M.Abraham and by Mr. M.S.Sahoo, SEBI has reported to Government - after verification of facts, that the allegations are not true. The reports sent by S.I;BI are dated February 2011, May 9, 2011, May 25,

2011, March 14,

and July 4,2011. Copy of reports dated

May 25 and July 4, 2011 are ';:'1t Annexure X and XI. Dr. Abraham has thanked me personally for being fair and impartial in sending the report to Goverrunent about his property. deal. He has expressed the same view to many people in SEBI. He has told me in informal chats that he -is worried about the safety of his family members and exhibited a strong element of insecurity. ,He also told, ,me thatl,e keeps a recording of his phone calls and

I

has got a device to record the private conversations that he has with people

without alerting or letting the other person know that the conversation is

I

being recorded by him.

I told him that such conduct is unethical and

unbecorhihg of a civil servant as he can selectively use it to harm other people Without alerting them. he said that he has to 'defend' himself. , -

In his conversations, he has made some scathing comments on certain officials of Ministry of Finance.

most severe ones have been reserved

for the current Joint Secretary (Capital Markets) who is from the same cadre as Dr. Abraham. I tried 7.0 counsel him and to be moderate in his comments, but he appeared to be under severe emotional stress and a delusion that everybody was outdo harm him and his family. He has also that Gomes from. 11. well "" that he ,

gomg to 'teach a lesson to everybody rnvolved

in

harassrng hun". _ HIS [

behaviour is being erratic and he seems to be under some delusion about threat to his family.

While the other WTM, Mr. Sahoo, has been facing

similar probe by CBDT, he is facing the same stoically as a civil servant.

10

- ---.- ... - - --.--------------,-----------.. -------.----J-.----

NISM: "'" â&#x20AC;˘ While I am shocked at the sudden change of his attitude, one possible

5.3

reason could be his expectation to be appointed as Director of National Institute of Securities Market (NISM).

The NISM was set up by SEBI and

Chairman of SEBI is the Chairman of the Board of Governors of the Institute.

The Selection Committee of NISM, chaired by my predecessor,

Mr. C.B.Bhave, has recommended (one week prior to Mr.Bhave's \

departure) that Dr. Abraham: should be given a 5 year term on a'. compensation of Rs.2.50 lakhs per month and also house, car and other benefits.

However, Mr.Bhavehesitated in passing the final orders in his

capacity as Chairman, SEBI - and marked it for his successor to take a decision. Dr. Abraham has raised this matter several times with me in person andrequested

to the point of embarrassment that I should clear

the file for his appointment.

However, .according to NISM Rules and

Regulations, the Selection Committee has to submit a panel of three or four names, whereas the Selection Committee had recommended only one single name in this case.

As such, .it was

difficult .for me to approve the

appointment in violation of the rules and I explained the same to him. But

1-- his contention was that he had to stay in Mumbai due to family reasons and /

I

maintaining two establishments would lead to financial hardship to him.

May be, this was one of the reasons for the after thought in his mind in I

\.__ . inventing these allegations.:It is also a matter of record a114' public \ knowledge that Dr. Abraham and Mr. Sahoo were expecting an extension of their tenure from 3 years to 5 years. The Government in its wisdom had decided not .to grant exrension, However, these decisions were taken well before I came to SEBI. Even the post for Whole Time Members replacing Dr. Abraham and Mr. Sahoo were advertised before my coming to SEBI. As such, I do not think this can be a ground for his grievance against me

"

'r

11

I

but may be a possible ground against people working in the Ministry of

...-'

Finance.

5.4

NSDL: In Para 2.1 above 1 have referred to the NSDL matter. Dr. Abraham has

expressed the view in his conversations with me that the current Board of SEBI should not revisit the decision of the earlier Board. ,

But when it

came to expressing his viewsbefore the aoard, he recused himself and proceeded on leave. However, the Hon'ble Supreme Court,

expressed

dissatisfaction against the working of the earlier Board that how they could have reviewed the orders of the;two member enquiry committee headed by

Mr. Mohan Gopal and declared the order as "non-est"

Not only that, the

ground highlighted for taking this decision by the earlier Board i.e. certain strictures passed in the Mohan Gopal committee report against SEBI itself and that the committee going beyond its brief, has been found to be an untenable argument by the Hon'ble Supreme Court.

It has also held that

these are mere suggestions or recommendations and cannot be held to be strictures against SEBI. (copy of Supreme Court order dated March 28, 2011 is at Annexure XII and letter from SEBI Advocate at Annexure XIII. - Annexure I and II also refer} Dr. Abraham has been very unhappy with these developments and has been telling me in private and informal discussions that SEBI board should stick to its earlier decision. My advice to him was that in the face of strong direction from the Hon'ble Supreme Court and the advice received from the SEBI Counsel, it would not be in SEBI's interest or in public interest to do so.

But he has been rather

emotional and vehement in his response on this matter.

Even Mr. Sahoo,

one of the members in whose presence the discussion took place once, explained to him that in view of the Attorney General's advice and the

1')

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- ---

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directions of the Hon'ble Supreme Court, SEBI has no option but to implement the same. But Dr. i\.braham was not ready to accept that.

6.

In the end, I am feeling really pained and sad that I have to explain these

developments because of allegations made in the letter.

Never in the

in my public service of over three decades have I faced such insinuations and that too from a senior colleague.

As will be clear from this letter, in a

short span of four months, I have tried to inculcate a habit of introspection, awareness about contemporary ,developments, enhance capability, improve surveillance and brought research-based approach to bring about improvements in SEB!' s workng,

I have conununicated directly with

majority of the employees and am happy that, by and large, they have welcomed my approach. A person who had openly been praising me till a few weeks back or even a wee! back, had no grievances against me, has come out with allegations which are totally unfounded, baseless and motivated. In Para 5, I have tried to understand some of the causes. But it is important to mention again that he appears to be in a deeply disturbed state of mind, suffering from a persecution complex and delusions that everybody is out to harm him. . ......

While clarifying my positions on the contents of the letter, I have been constrained by the burden of the responsible position I am holding and in the larger interests of SEBI and the capital markets, I have refrained from listing out deficiencies and instances because it does not serve public purpose to wash linen in public.

I believe that no organization is perfect

and bringing out systemic imprcvements in SEBI is my *as its current chairman.

UK. Sinha

. Mr. Praveen Trivedi/ Mr. Rakesh Kumar Singh, , . SEBI-NRO,

New Delhi.

Dear Mr.Trivedii Mr. Singh, Further to our e-mail dated31.03.2011onthecaptioneasubject.itis informed that the SEBI Board making its own Committee's order none-est. That is why when on 28.03.2011, Learned AG pointed out that present Chairman does not want to take any step suggesting that he was reviewing orders passed earlier, the Hon'ble SC passed order seeking Board's view as to whether it would consider re-considering the order! report of the Special Committee dated 04.12.2008.

Kind regards, ...

Pratap Venugopal, KJ.John & Co., Advocates, New Delhi.

Regarding this email and attao iments:'jThis email is confidential arid may contain privileged information. If you are not the intended recipient or receive it in error, you may not use, distribute, disclose or copy any of it (and such may be unlawful), and you must immediately notify and return it to us at and destroy all copies. As good computing practice, you should conduct your own virus checking.

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7/6/2011

NEWS PAPER CLIPPINGS - AGENDA/CHALLENGES FOR SEBl

DATE

NAME OF PUBLICATION

TITLE OF ARTICLE

15.12.2010

Mint, Mumbai

Uk Sinha to succeed Bhave

15.12.2010 18.02.2011

19.02.2011 19.02.2011

The Hindustan Times Business Standard The Asian-Age, Mumbai The Hindu Business Line, Mumbai

Gentle to a fault, finn as steel The tasks for Mr. Sinha Sinha takes over as SEBI Chairman Touch challenges ahead

INTERALIA MENTIONED ABOUT MCX Stock Exchange Ltd. (MCX); lICl Bank Ltd., Reliance Industries Ltd. (RIL) MCX Inconsistency in consent orders.

RIL MCX,RIL

--

.

15

Zl,qO

IliDt Mumbai

UK Sinha to succeed Bhave

UK Sinha tto succeed

Bhave at Sebi

By N.

SUNOARF.SHA

SUBIlAMAN1AN &

r

i>" FROM PAGE 1

ANIRUDU LASKAR

the current chairman' of the Association of Mutual Funds of en ior bureaucrat and India, or Amfi, the industry chairman of UTI Asset . lobby group.

Management Co. Ltd U.K. SinBesides, he has headed a reha will become the next chaircent committee set up by the man of the Securities and ExCentral government to rework change Board of India (Sehi). the framework govern'ng forA Central government panel investments. eign headed by cabinet secretary A postgraduate in me .hematK.M. Chandrasekhar has choics and a l-wver by edication, I sen Sinha from a list of candiSinha started his career as a ""'dates including senior bankers probationary officer in State and bureaucrats, according to Bank of India. three persons familiar with the As joint secretary in the development. banking division of the ministry A formal announcement by of finance, he played a key role the government is expected in in the merger of ICIeI Ltd with January. to create InSinha, who will assume ofdia's first uhiversal bank. Befice in the third week of FebrutweenTune 2002 and October ary, declined comment.

2005, as joint secretary in the A self-confessed "music afidepartment of economic afcionado", Sinha brings to the fairs, he made key decl.sions on table a rich experience in capirelating to the capital issues tal markets. A 1976 batch Indimarket, external commercial an Administrative Service offiborrowings, pension; reforms cer from the Bihar cadre, he and foreign exchange managewas a joint secretary in charge menL ' of capital markets in the minisIn 2005, he was chosen to try of finance before heading lead UTI Asset Man .路,gement UTI Asset Management, Inwhen its then chief M' Damodia's fourth largest mutual I daran was picked for the post of funds by assets. Sinha is also Sebi chairman. While Darnodaran as well as incumbent C.B. TURN TO PAGE 2..

Bhave had a three-ya-ir term, Sinha, who turns 59 ir' March, will have a five-year te; .n.

During .. Bhave's ,eventfuJ three-year term, that l.:>mes to an end on 18 february, the global markets witnessed an unprecedented crisis and the local market went through several landmark policy changes for mutual . funds,the primary as weIJ as secondary markets.

MUMBAI

S

"

A series of changes beginning with the banning of entry loads have altered the face of the ,,{7 trillion mutual fund industry.

While .investor interest has been protected, fund houses are still trying to adjust their business models to the regulatory changes.

As head of UTI Asset Management, Sinha was at the receiving end of the regulator's. move 10 ban entry loads on mutual funds last August. He had then called for a level playing field across different product categories such as mutual funds and insurance policies.

Bhave wanted to create a level playing field by having a say in the regulation of unit-linked insurance plans, or Ulips, but could not do so. Both Sebi and the Insurance regulator fought hard and when there was no solution illsight, the finance ministry stepped in and asked both to seek a legal solution that would be binding. But before the court could take it up, the government issued the ordinance to settle the matter in favour of the insurance regulator.

Being Sebi chairman, Sinha will decide on the fate of two key policy papers introduced during Bhave's term. A panel headed by C. Achuthan has redrawn the rules govefning corporate takeovers and another panel, headed by former Reserve Bank of India governor Bimal [alan, has recommended the framework governing market . infrastructure institutions SUeIl as stock exchanges, depositories and clearing corporations.

Both these reports have cer-

lain controversial provisions and they will keep Sinha busy in the initial days, especially the takeover code as the Sebi board has already begun discussions on the draft.

Then there are orders against ';iWCX Stock: Exchange Ltd and the Sahara group, challenged in the courts.

Sebi also slapped show-cause notices against Anil Ambani, the head of the Reliance-Anil Dhirubhai Ambani Group, and has been pursuing insider trading charges against :Reliance ;,Industries Ltd, India's most valuable firm by market capitalization.

These and Invesngadon into India's biggest corporate scam, at the erstwhile Satyam 'Cumputers, are expected to be high on Sinha's priority list.

A love for music and Urdu poetry will probably help him fight the stress associated with a market regulator's job. "In the mornings, while walking, I listen to music on my iPod. Everyday, I enjoy listening to music for an hour after reaching borne... Listening to music, while driving to work or back home, is very relaxing," Sinha wrote in a newspaper early this year. "Indoor games like bridge also help me unwind; being good at numbers helps there, I guess. I love analysing numhers, having done my postgraduation in mathematics and statistics. " Corporate affairs secretary R. Bandyopadhyay, department of disinvestment additional secretary S. Pradhan, Madhya Pradesh principal secretary G.P. Singhal and two State Bank of India managing directors, S .K. Bhattacharya and R. Sridha-an, were contenders for the post.

The panel, headed by Chandrasekhar, includes financial services secretary R. Gopalan, department of personnel secretary Shantanu Consul and finance secretary Ashok Chawla. n.sul)ramanian@/illeminc.com ./

ll1 5 2010

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his calling was not to hp,ad '..\ commerciai.jrganisation, Over Room no. 62 is a quiet corner in tea, in his "th floor officeat UTI North Block, home to the min- Tawers,It'oldhimthatthesmall istry of finance. Between June. fraternity of'pension reformers 2002 and October 2005, this and partie ipants expected him room wasthe officeof UKSinha, to take ol; arge as the pension then joint secretary (capital mar- regulator..He smiled and said kets). Gentle to a fault but firm the post 0 'financial regulators as steel, it was in this room that is reserve d for retired secreI first met Sinha and came out taries, not active workers. (M impressed with ,his deep lmowl- Damodaran, who was a serving edge of not merely capital mar- IAS secretary-ranked officer kets and its emerging arm, penwhen he took charge as SEBI sions, but their impact on the chairman in 2005; had also real economy, real people. served as . m chairman.) , When he rooved out of the, In February 2008, when the finance ministry and took early .. indomital.le CB Bhave took retirement from the:IA,E; to head charge as' chairman of UTI Mutual Fund, I found the (Securitiesand ExchlingeBoard , move almost preordained - he of India), Sinha was proved had drafted the UTI (Repeal) wrong - Bhave was neither a Act and knew much about the secretary rankedofficernor even legal innards of the fund. And a serving lAS.officer; he was then though he has done well there, chairman of NSDL (National • lellers@hinduslanlimes.com

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Securities Depository Ltd). ">0,,'\, , But when Bhavetook a stance that investors in unit linked insurance plans (ULIPs) were being systematically cheated and insurers selling the product would need SEBI clearance, cracks developed between Bhave on one side and the Insurance Regulatory and Developmenn.Authority and finance ministry on the other. By late 2010 it was clear that Bhave's term was unlikely to be extended. A more pliable man was needed, II senior officialtoldme.

So, Sinhasname was announced informally (it is still to be cleared by the Cabinet), I didn't believe it as Sinha is anything but' pliable. But like it or not, Sinha is goingto be the next SEBlcbairnianand that's good for capital markets, Hisregulatory DNA is more aligned With Bhave's - high on integrity, competence, knowledge, and low on lobbyists, inanipulators, fixers. Coincidentally,Sinha had also drafted the SEBI (Amendment) Act, 2002.

when

» CON:J1NUED ON PAGE 17 . /

Gentle, toa fault, firm as steel CONTINUED FROM PAGE 15

If that's a pattern, his n- xt assignment be. the chairman of PensionRegulatory lind Development Authority (PFRDA), a bill he drafted in

integrity, even in matters intel-

lectual, iswhatmakesSinha the person he is - dust off the

errors and get going. .

Sinha is yet to show that he ClIl;l bite, an important aspect of being SEBI chairman, But 2005. . there are/enough challenges Our last engagement was a waiting for him, the first of' mini-skirmish. Sinha was on a which is how he will handle the podium at a pensions confer- messyissue ence and said that unless fund beCQme "'8.' managers get a higher fee they Bhave's:vi.ew is-thiltttiii'prowon't be able to deliver the moter's stake is too dominant and should not be allowed. We promise of the new pension tern to masses. I asked hi.m, wait for Sinha to take charge "Why should the nation paj if and see 'his s''Ulce (the matter you bid wrong in an open a.l...... is in courts fbr now): The other issue that Sinha tion?" (Sinha had bid to manage pension funds, a will have to take head on is that number that made him {he of no loads in mutual funds. As most hated man in the firran- UTI chairman he was uncomfortable with it and much ofthe cial sector in February 200).)

He asked a revealing cou)nt- industry lobbying took strength er question: "Should we from Sinha's discomfort. But as and make the nation sufer SEBIchairmanwillhereverse because we made a mistake? Bhave's decision? I don't think .....- .-.. - ...-.....--.... -.. ··---Or...,l;hould.we-moue..on?:'Tbis_-.llo-and..cm..<YJ:!}y don't hOIDLS.Q,-.

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Business Standard VOLUME

xv

162

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The tasks for Mr Sinha Guiding Sebi and markets through citallenging times new chairperson takes charg e . fuse life into it: Even inof the Securities and Exchang vestor protection Its catechism, It must Board of India (Sebi) today. Mr demonstrate its sensitivity to the needs U K Sinha comes to Sebi in challeng - of industry. In the past, Sebi has been ing times, when "governance deficit" able to implement critical reforms in. is the new buzz word both in corporate the securities market with ease only India and in the field of regulation, because it was able to carry the marHe also collects the baton from a pred- ket along with it. ecessor who has left behind a mixed The fate of the report of the comtrack record of good governance and mittee on takeover regt$itions, which avoidable controversy. The world ha¡ included the recommendation.on the changed and so has Sebi in the past we lOOpercent takeover announced decades. Tcday, Indian markets haw with much fanfare isnotyet known. matured and are more integrated witt The Sebi beard had postponed the deworld markets. This demands greater cision twice. This paper had welcomed alertness to events and trends and in- the report's recommendations, but had creased finesse as well as sensitivity on cautioned that its implementation may Sebi's part in dealing with emerging is- not be easy. Similadgnoaction could sues. Sebi must be able to display this be taken on the BimalJalan Comin its regulatory actions, in its dealings mittee report, It is animportant report with another regulator and in resolv- and the Sebi board should deliberate ing a dispute between two regulated on this quickly.Reports often lose their entities. Though a regulator is not re- validity and contemporaneity if kept quired to win a popularity contest nor on the back t..lmer for a long time. will its actions ever satisfy all, it is equalSebi has introduced a system of conly true that efforts should be made sent orders. It is a useful system that not to keep critical issues on Sebi take relatively quick action for a long time, so that resolvable 1$, and reduce the backlog of action' sues do not tum into intractabld.ones, able cases, But it isimportant to mainwhich necessitate settlement oq!ym . rain uniformityin consentorders. For the courts. In the current .sirilllar the penalty inust ,.. regulatory coordination has become ...'be uniform. For this, the people who more important than before and It Will .are-entrusted with dispensing the remain so henceforth. There is no fun must be well equipped withthe in always going to the court to resolve â&#x20AC;˘â&#x20AC;˘'knowledge of thesecurities market regulatory disputes.Coordination,ratherandj4risprudence. The regulatory role than confrontation, always yields sus- .. of stock exchanges in a demutualised tainable benefits, It enhan-vs the im- . scenariois 110t clear; nor is the purpose . .qf pI'e$eJ,"Vilig all 20 stock exchanges. age of a regulator; .In the absence of a viable domes- Corporate governance is critical for tic institutional investor class, theIn- . the market. But it is not always apdian securities market has been to- .. ;'pareptif Sebi or stock exchanges have tally driven by foreign institutional In- demonstrable measures for the irnvestors (FIrs). This is far from healthy. provement Of governance standards A mature stock market should have of listed companies. Equally,Sebi must multiple classes of investors with var- . always ensurethat governance is workied preferences. Domestic mutual funds ing well within Sebi and that the Seare in the doldrums, In the interest . bi board has the depth of expertise and of the Indian securities market, S;ebi diversity cf experience and funcmust help revive the industry and in- . ':oOs like ali effective board,

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DIe Asian :\ge, tw\umba\

Sinha takes over as Sebi chairman AGE CORRESPONDENT

MUMBAI

Feb. 18: Mr Upendra Kumar Sinha took charge as the 8th chairman of the Securities and Exchange "",Board of India (Sebi) on Friday.

He takes over from Mr C. Bhave whose 3-year term ended on Thursday, Me Sinha comes to Sebi with a formidable background both in an out of the government.

A former IAS officer of the Bihar cadre, 57-year, old Mr Sinha resigned from the lAS when he was additional secretary and was sentc?t! . UJ.e /lln.l'r-'Trust. 'of

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He was the 'chairman and the managing director of UTI Asset Management Company Ltd 'and chairman of Association of Mutual Funds in India when he was selected to head Seb\.

Mr Sinha IS no stranger to the capital market as in government he had held the positions of secretary,

banking and JOInt secretary, capital lJlarkets,Mr Sinha will have little tme to get acclimatised tc ule job as there are important decisions awaiting to be approved. .

Foremost among these is thelong drawn negotiations that Mr Mukesh Amba u's !Reliance ;-wdusti'ies:'nas

on a consent agreement OVer insider trading action against the company by the market regulator - Seb-.

There are also mrior issues like r"'e controverial .

B imal Jalan Committee report that said among other . things that stock exchanges should not be listed ":' f.l. c, , ." â&#x20AC;˘ -

exchange ownership and the finalisation of the new takeover code ..

Investors who have been used to the market regulr tor giving them a level playing field as Mr Bhave did c;u;ing his three-year .temre, will be looking forward to Mr Sinha taking further inistrengthen tiatives to investor protection

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Tough challenges ahead Our Bureau Chennai, Feb. 18

Mr U. K. Sinha, Chairman of has some tough tasks ahead of him, including taking a decision on the long-pending case against Mr Mukesh Ambani-controlled Reliance Industries on alleged insider trading. .. :rhe case is pending against RIL since Mr M. Damodaran's term as the SEBI chiet The ... . relate's to thealleged violation of insider trading norms in 2007 in Reliance Petroleum (RPL), which got merged with Reliance Industries subsequent-

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. There were reports that the company made a few attempts to settle the case through the 'consent route' but that did

." The mutual fund industry is also pinning hopes on him as it has been bleeding ever since SEBI removed entry load in 2009.' . . Yv not materialise. The mutual fund industry is also pinriing hopes on him as it has been bleeding ever since removed entry 101ld in 20t)!I. As Mr Sinha hails from tr:e MF industry (lJ'r'l.Mutual 'und), the industry 'is.expecting him to take some measure ; that could revive inflows irro the sector.

Mr Sinha had told Bu.;iness Line in 2009 that the mutual fund industry does not have a collective voice of protest.

"If you are Chairmar. of a large group which has: .ot an

. insurance company and a mutualfund, very little capital flow is involved in the mutual fund business and a very high amount of capital is involved in the. insurance business. So, if the CEO ofthe mutual fund company -of the insurance company both come and complain to you, it's very simple whom you are going to listen to. So the mutual fund industry doesn't have a voice," Mr Sinha had told Business Line.

Another key challenge that Mr Sinha has to deal with is

maintaining the autonomy of SEBI, particularly when the Government is planning a super regulator in the form of FSDC or the Financial Stability and Development Council.

Mr Sinha has to also decide on the takeover code proposed by the Achuthan committee and on market infrastructure institutions regarding ownership and profitability .of stock exchanges recommended b.y the Bimal Jalan committee; .

Mr Sinha's has to also deal with Financial Technologies, which IS 'the main promoter of this exchange.ihad dragged SEBI to Court, following the rejection of its application for equity trading citing non-adherence to ownership norms.

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amarjeet

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---.-------------1' From;

amarjeet [amarjeets@sebLgov.in]

Sent:

Friday. May 20, 2011 5:02 PM

To:

Pradnya Saravade; Ramann S; 'sanjayp@sebLgov.in'

Subject: ATR - urgent

Dear Madam I Sir, We require urgently the action taken report (ATR) as per the format placed below in respect of Adani group .

Please mail thesoft-copyoftheATRby5:30p.m.todaytovenkateswaran@sebi.gov.in Thanking you, Yours sincerely,

Amarjeet Singh

EAC

ATRrlnM/s---

1. Registrations with SEBI • How long they have been registered with S[81 • Date of Renewal of the Registrations 2. Key Statistics in brief 3. Actions Taken! contemplated, if any 4. Issues. if any, with the group i 5. Any other information that may be considered USI!ful

6/30/2011

... •... ,

....

_._--_._---_.-----.- ----

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amarjeet

r

From:

amar [amarjeets@sebLgov.in]

Sent:

Wednesday, March 16, 2011 11:25 AM ,

To:

Pradnya Saravade; RAVINDRAN S; Ramann S

cc:

Venkateswaran R

'"

,

Subject: ATR - urgent

Dear Madam I Sir, We require urgently the action taken report (ATR) as per the format placed below in respect of Tata Mutual Fund.

.

Please mail the soft-copy ofthe ATRs to venka:eswaran@sebi.gov.in by 1 p.m. on 21.03.11.

Thanking you, Yours sincerely, Amarjeet Singh

EAC ATR on MIs - - 1; . Registrations with SEBI ¡.Hqw long they have been registered with ,.. of Renewal of the Registrations . in brief contemplated, if any .-4. 'f" any, with the group 5. Any other information that may be considered useful

6/30/2011

.........

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Presentation by Legal iffalrs Departmentol?,22.02.1.1-Action Points 1. Age wise analysis of num

r of

interim orders indicating:

•

Number of ex-parte in

•

Number of cases where I terim orders passed and investigation is pending

•

Number of show cause no

•

Number of final orders to be assed after issue of show cause notice

r m orders passed and pending for confirmation

es to be issued post investigation

(Discussion on interim orders to be am ngedj 2. Copies of circulars and internal guldelln

issued for consent and compounding

3. Copy of internal circular issued on multipl enforcement actions 4. Wish list on the Companies Bill -: whether a .andrnents suggested by SEBI have been incorporated; any amendments which may

mpromise SEBI's position

-5. Powers of SEBI vis-a-vis other regulators in th country and abroad e- comparison of SEBI Act with the statutes of other comparable egulators {RBI, IROA, TRAI etc.} and also with the Acts of the foreign regulators 6. Presentation of important caseson a Iater.date (e•• -what happened and what are the lessons)

********* ..

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, amarjeet ---From:

amar [amarjeets@sebLgov.in]

Sent:

Friday April 08, 2011 8:45 PM

To:

Pradnya Saravade; RAVINDRAN S; Ramann S; V f> SJNDARESAN" CGM, SEBI; jeevans@sebi.gov.in; sanjayp@sebi.gcv.•n

I

Subject: ATR - urgent

Dear Madam I Sir, We require urgently the action taken report (AJR) as per the format placed below in respect of the following groups: 1.

2.

3.

4.

Axis Bank Reliance Mutual Fund CRISIL Larsen and Toubro Finance

Please mail the soft-copy of the A1R in respect of Larsen and Toubro Finance by 11 a. rn, on 11.04.11 and in respect of other entities by 3 p.m.on 11.04.11 to venkateswanm@sebLgov.in

...

Thanking you,

Yours sincerely, Amarjeet Singh

EAC

ATR on MIs - - 1. Registrations with SEBI 2.

3.

4.

5.

• How long they have been registered with , Date of Renewal of the Registrations Key Statistics in brief Actions Takenl contemplated, if any Issues, if any, with the group Any other information that may be considered useful

711/2011 I,.'

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but after hearing the brilliant message which he has articulated before you, / kina of cannot make myself bald to attempt a synopsis because / will be detracting from the beauty of that

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basically being the striving

towards higher levels of national growth.

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Ypeople,L,andibeautifuJly..:he... "/. think there is a tremendous spiritual content too in that message, of people mutually participating, mutually enhancing each other, mutuaJJy reinforcing each other's value and use to the I

organization and to the country. /,

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mission and vision, / think, that would be the best contribution that you could make in your lifetime to the country.

May God bless all of us to achieve that mission.

And, we thank you, Sir, from the bottom of our'neart. for this fantastic message that you have given us, . <f-or the message that you have given. .

very much."

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Division of Issues and listing-II Sub:-Public notice regarding vacation, of stay of SEBI's order in the matter of issuance of OFCDs by Sahara Group Companies 1. SEBI had issued a public notice on January 07, 2011 (Flat A) detailing the facts and circumstances regarding SEBl's order dated November 24, 2010 in the matter of issuance of Optionally Fully Convertible Debentures (OFCDs) by Sahara lndia Real Estate Corporation Limited (SIRECL) and Sahara Housing Investrnent Corporation Limited (SHICl) and subsequent staying of the impugne1 order by lucknow Bench of Hon'ble High Court of Allahabad vide its order-dated December 13, 2010, to enable the prospective investors in the OFCDs of SIRECL and SHICl to take informed decision as to their investment.

2. On April 07, 2011, Lucknow bench of the Hon'ble Allahabad High Court, inter-alia observed thilt the information furnished by the petitioners (SIRECl and Mr. Ashok Roy Choudhary) to SEBI, in the process of inquiry, canno. be said :0 be any lnforrnation in the eyes of law, within the directives issued by the Court and that they do not find any ground to, continue with the interim order. Hence, the Hon'ble High Court vacated the interim order, for the own conduct of the petitioners. Copy of the order is placed at Flag ,B. Consequent to the vacation of stay of SEBl's order, SEBI order dated November 24, 2010 restraining the companies (SIRECl and SHICl) including the persons named as promoters and directors of the- said companies in the respective RHP from mobilizing funds inter alia through these OFCDs, further directions, is operative,., c::..\ I.-... J; (H 1<..:'(' J. t .;" . C-r.> {\ t e- : '\. \.-<z...

• 3. Since the stay in the matter is now vacated) we may consider issuing a Public Notice to bring the aforesaid development to the atterition of the public.

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(IS dictated by Shri R N Trivedi , our senior legal counsel, is placed at FLlg B for approval. We may request lAD to vet the Public Notice,

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April 13, 2011

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Securities and Exchange Board of India PUBLIC NOTICE TO THE INVeSTORS Of SAHARA INDIA REAL ESTATE CORPORATION AND SAHARA HOUSING INVESTMENT CORPORATION LIMITED

SEBI had passed an ad interim restraint order dated November 24, 2010 against Sahara India Reat Estate Corporation Limited (SIRECL), Sahara Housing lnvestment COJ1)Oration Limited (SHiel) and the perscr-snamed 88 promoters and directors in the respective red-herring prospectus (RHP) with respect to issuance of Optionally Fully Convertible Debentures {OFCDs).

SIRECL had challenged SEBI's order in a writ petition filed before lueknow bench of Court. By its i,lterim order dated December 13, 2010, the ·Hon'ble High Court inter alia stayed the operation of the SEat order with liberty to SEBI ' to proceed with the inquiry but, restraining SEBI from taking final decision. In a special leave petition filed by SEBI, the Hon'ble Supreme Court of India by its order dated January 4, 2011 inter-afia observed that SEBI would be entitled to call for any information which it dedms fit inclt:-:'!I'lg the names of tlhe investors who have invested in OFCDs In the course of the inquiry, undertaken by it. '

tt1e Hon'ble Allahabad High

On April.5,2011, SEBr til,ed an application before the Hon'ble High Court for vacation of the interim order·cIated December 13, 2010 and dismissal of the writ petition on the ground the said interim order is not complied with till date and the requisite inforinatiof,l as asked for,by SEBI has not bBen providEId. . y'

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f) <iS1 The invest9rs are hereby informed that April 07, 2011 (Copy of the order), the HifJh Court inter-alia observed that the information furnished by the petititmers (to seat) in the process of inquiry cannot be said to be any information in the eyes of laV/, within the directives issued by the Court 'and that they do not find any ,ground to CQOtinue with the interim order. The Hon'be High Court vacated its interim order dated December 13,2010 for the own conduct of the petitioners.

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Securities and E:;tchange Board of India PUBLIC NOTICE TO THE INVESTORS OF SAHARA INDIA REAL ESTATE CORPORATION LIMITED AND SAHARA HOUSING INVESTMENT CORPORATION LIMITED

SEBI had passed an ad interim restraint order dated November 24, 2010 against Sahara India Real Estate Corporation Limited (SIRECL), Sahara Housing Investment Corporation Limited (SHICl) and the persons narner' as promoters and directors in the ,

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respective red-herring prospectus (RHP) with. respect to issuance of Optionally Fully 0'<1

Convertible Debentures (OFCDs).

SIRECL had challenged SEBl's order 'in a writ petition filed before Lucknow bench of the Hon'ble Allahabad High Court. By its interim order dated December 13, 2010, the Court inter alia stayed operation of the SEBI order with liberty to SEBI

the inquiry but

SEBI fram taking final decision. In

a special

leave petition filed by SEBI, 'the Hon'ole Supreme Court of India by its order dated January 4, 2011 inter-alia observed that SEBJ: would be entitled to call for any information which it deems fit including the names of the investors who have invested in OFCDs in the course of the inquiry undertaken by it.

On April 5,2011, SEBI filed an applicaton before the Hon'ble High Court for vacation of the interim order dated December 1;:, 2010 and dismissal of the writ petition on the ground that the said interim order if,: not complied with till date and the requisite information as asked for by SEBI has not been provided.

The investors are hereby informed that on April 07, 2011, the Hon'ble High Court interalia observed that the information furnished by the petitioners (to SEBI) in the process I

of inquiry cannot be said to be any inf)rmation in the eyes of law, within the directives issued by the Ccurt and that,J/:ley do not find any.qround to continue with the interim

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Trust it finds you happy and in cheers.'

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As per Honourable Supreme Court :qirection our team has to go to SEBI (after SEBI calls us) and shall do preseiatation about OFCD. My humble request is that if you can spare 'little, time and you please sit in the presentation (your sitting in meeting should not be embarrassing since it has unfortunately become High Profi.e Case) and then only we shall get justice. If you do not seat, other people shall try to complicate the matter out of vengeance.

Kindly do the needful and oblige.

With kind regards, Yo rs sincerely, ,Ii

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Subrata Roy Sahara ,

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There seem; to be no resp'te for MCX SX in its standoff w{,:"':' regulator SEL.I on obtaining a license for operationalising i\J>: ' exchange. \. . l'

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NDTV has eamt that in its latest reply filed in the Bombay High court, the regulato r bas said that they continue to stand by their order passed on September 23 last year and have refused to give any hearing to the promoters ofMCX-SX. SEBI has questioned the integrity ofthe promoters as they argue that certain facts were concealed by them.

Concealment of facts were particularly on the issue of the warrant conversion model adopted by them to reduce their equity stake to 5 per cent as required by the law.

Clearly, there seems to be no softening of stand even after the new chairman, U K Sinha took over from C B Bhave, Bhave was seen to be the one who had taken a tough stand on this issue with the regulator insisting that MCX SX promoters reduce their stake frOnl 70 per cent to 5 per cent each as per regulations. "l'

MCX had issued warrants to institutions to reduce their stake but SEBI had rejected the model on the grounds that this model was an attempt to ens.ire concentration of economic interest in the hands of the two promoters and the applicant had been dishonest in withholding information on ownership of shares.

The case is scheduled to come up for hearing on Aug 3 at the Bombay HC but the other issue that one needs to watch out for is the currency derivates license of MCX-SX that comes up for renewal in September this year. It remains to be seen whether SEBI this time take a relook at the renewal or take a softer stand. ' Related Stories • • • • •

SEBI settles probe against Tata Securities Sebi ask Delhi-based fIrm for details o'fits Sebi to Sahara: Refund money raised via OFCDs Sebi bars two Sahara Group fIrms from equity market SEBI looking at ways to incentivise MF distributors: Sinha

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* Comment -sx-case-to-bomba.;

7/7/2011

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TI1e background of th case may kindly be seen on page 6. following conclusions .emerge :

The'

1) The lock in period cannot be reckoned from the date of withdrawal of the case in the Supreme Court. As opined by LAD

in Para 3 Page 8, it would be legally untenable to do so.

2) The investigation department has observed (Page 4 ) that there is no prime facie violation by the 8 entities who hold the majority of the 90 lakhs shares. As advised by IVD, the 8 entities Carl be investigated in tho on-going investigations. As regards Shri Anil Kumar uubey wh i appears in list of persons covered by the SEBI order, JCICI Bank has informed that they have withheld dispatch of the certificate.of Mr. Dubey.

Therefore, considering the fact that lCICI withdrew the appeal filed, before Hon'ble Supreme Court after payment of the differential of the two prices, we may permit listing of these in the stock

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SEBI/Vigl PS/AKJ 12011 May 25, 2011 Dr. Thomas Mathew, Joint Secretary (Clvl) Ministry of Finance Department of Economic Affairs North Block New Delhi -110001 Dear Sir, Sub: Anonymous Complaints against Whole Time Members of SEBI

SEBI's attention has been drawn to reports in the media about an enquiry going on in the Government about alleged irregularities in the purchase of flats by two SEBI Members Dr. K.M. Abraham and Mr. M.S. Sahoo. This reference had been received in SEBI from the Govemment based on an anonymous 'letter. After conducting a detailed enquiry including on site verification, a report was sent to the Government. SEBI enquiry did not find any irregularity against the Members, Recently, a journalist sent an email to the two Members asking for information about the same matter, to which the Members replied. SEBI's spokesperson also clarified the position about SEBI's findings to the joumalist. However, the news paper carried the report. ,I

It is found that on three previous occasions mail had been delivered at the residence of Chairman, SEBI containing the same set Of information which are repetitive and dealing with the same subject as the anonymous petition - irregular acquisition of flats. SEBI conducted an enquiry by going to the addresses of the complainant. It was found that none of the addresses were correct. In f:'ict, the house numbers from which the letters were allegedly sent 10 not exist (copy of tre report enclosed).

In this context, it is apparent that some set of people who are aggrieved with SEBI or its actions are trying to malign the Members and also the institution of SEBI. Govemment may like to take appropriate measures in the light of the existing eve and other guidelines about dealing with anonymous petitions.

With regards,

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CONFIDENTIAL

EXECUTIVE DIRECTOR AND

CHIEF VIGILANCE OFFICER

SEBVVigi AKJ /2011 , May 09,2011

Ms Rose Mary K Abraham Deputy Director (SM) Ministry of Finance Department of Economic Affairs SM Section North Block, New Delhi -110001 Dear Madam, Further to our letter Ref: SEBIlVig/AK/8332/2011 dated March 14,2011, it was realized that two similar set of anonymous papers were received directly at the residential address of Chairman, SEBI. The cover forwarding one of the said anonymous set of papers received at Chairman's residence mentioned the sender's name as lime Ishwar Singh with address as Y-232/ 24A, Lade Sarai, New Delhi, On verification, it ',¥as found that no such flat number exists at Lado Sarai, New Delhi, The cover forwarding another similar anonymous set of papers received .at Chairman's residence mentioned the sender's name a.. one Mahender Kumar, DDA Flats, Kalkaji, New Delhi - 110019. On verification, 'it was found that no such flat number exists at DDA Flats, Kalkaji, New Delhi.

Thus, it is, clear from the above verification exercise that the complainants are not genuine and the complaints are anonymous/ pseudonymous in nature,

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Securities and Exchange Board of India CONFIDENTIAL

EXECUTIVE DIRECTOR AND CHIEF VIGILANCE OFFICER SEBI/Vig/

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Shri Ramesh Krishnamurthi, Director, Ministry of Finance, Department of Economic Affairs, Capital Markets Division, North Block, ".

New Delhi- 110 001.

Dear Sir, This has reference to your fax letter Ref: F.No. 11/S/20ll-PM dated June 14, 2011 in the matter of the news item titled "SEBI's Abraham alleges harassment by Taxmen" that appeared in the Economic Times dated June 14, 2011.

So far as the alleged IT probe by the Finance Ministry, the d-eta.ls and facts would be available before the Government, if any, and SEIWdoes not have any information or material on the same.

So far as the report in the news article regarding purchase of flats by Dr. K. M. Abraham and Mr. M, 5; Sahoo are concerned, SEBI's and findings have already been communicated through SEBI's letter dated February 11, 2011. March 14,2011 and May 9, 2011. The main findings after SE81's enquiry are that no irregularities have been found and the complainants werefound to be not genuine.

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(Dr. Pradnya Saravade)

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S V PRE M E

Petition (5)

SECTION XIV

COVET NO.3

ITEN NO.3l

C O路U R T 0 FIN D I A RECORD OF PROCEEDINGS

for Special Leave to Appeal (Civil) CC 2801)2011

/2011

(From the judgement and order dated '29/09)2010i11 HIGH COURT OF DELHI AT N. DELHI)

No. 6621/2010 of The

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SOCIAL ACTION FORu"M FOR MANAV ADfUI\FR VERSUS

UNION OF INDIA & DRS. '",

WITH I.A.l(With appln(s) Date: 09/05/2011

CORAM

for c/pelay in filing SLP}

This Petition wa3 called on for hearing today.

HON'BLE MR. JUSTICE n.V.

)lON' BLE MR. JUSTICE A. K. PATNAIK

For Petitioner(s)

Mr. Prashant Bhushan,Adv. Ms. Pyoli, Adv.

For Respondent{s}

Mr. G.E. Vahanvati, AG Mr. Pratap Venugopal, Adv. Ms. Surekha Raman, Adv , Mr. Dileep .P., Adv. Mr. Anuj Sarma, Adv. Mr. Varun SL.gh, Adv. Ms. Narnrata Sood, Adv. Mis. K.J. J)hn & Co.,Adv.

f o r:

UPON hearing counsel

Court made the following

o R D E R On

28.3.2011,

this

Court

made

the

following

order: "The Securities & Board of Indi,- (SEBI) to co n s.Ld.i r whether its Board will re-consider the of its Special Committee dated 4.12.2008 with reference to NSDL/DSQ and pass appropriate resolution and place it before Court for further consideration."

In pursuance of the same, the SEBl has considered the matter at its 137th meeting held on 26.4.2011 and resolved to reconsider the decision dated 9.11.2009 by which it treated the reports dated 4.12.2008 of the sub-Committee in respect of IPO/DSQ of NSDL as non-est.

It has further resolved that i t wou.. d reconsider the order/Report of its subCommittee dated 4.12.2008 \-lith r e f ev e n ce to NSDL/DSQwith a view to accept i t except the portion relating SEBI was passed ex-parte.

.On examination. o£... 8'of:the . the. s ub-,-Co.mmi.ttee. dated .4,.),2. 20 Pfl·has . ·much. alone' .·ma.de,eertain

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a ilub,:"'Conunittee of' . . . .. , .s-. ": ,', ,. the', ' . .xioe s not . Theref()Ie.;.,.'there • is- no ne.ed to' exclude-the

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1\..s the Board has decided to reconsider the reports of the sub-Committee dated 4.12.2009, list the matter in the first week of August, 2011, to await the decision of SEBI on such reconsideration.

(Ravi P. Verma) Court Master

( M.S.Negi )

Court Master

f=rorfl:. F'f"atap Venugopai r Sent: Fridav, May 27; 2011 3:47 PfVl To: praveent; rakeshs Subject: SLP (C) No, of 2011 ece No.2801) - Social Action forum for fVlanav Adhikar Vs, UOI & Ors. - In the Supreme Court of India Iv'lr. Praveen Trivedi/ fVjr. Rakesh xurnar Singh;

SEBI-NRO, New Delhi.

Dear Mr.Trivedi/ Mr. Singh,

As desired, I have had a meeting with the Learned Attorney General for India today l.e. 27.05.2011 with respe:t to the captioned matter and further action to be taken by SEBI. The Learned Attorney General informed tile undersigned that he has had meetings and discussions with the Executve Director (ED) and Member SEBl and clarified that in view of the order dated 09.05.2011rit

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Kind regards,

Pratap venuqooal, KJ.John & Ca.,

Advocates, New Delhi.

https:llocs.sebigov.in/um/templates/message_lisLuix?state=messageJist&cAction=openm.., 5/30/2011

Please refer to your letter dated 31 5t August 2010 regarding issue of directions to SEBI by the Ministry of Finance under the provisions of Section 16 of the SEBI Act 1992.

2.

I have got the matter examined. Under clause 16(1) of SEBI Act, SEBI is bound by such directions on questions of polley as the Government may give in writing to it from time to time, provided that .....__ e Board shall, as far as practicable, be given an opportunity to express its views before any direction is given under this sub-section and 16 (2) states that the decision of the Central Government whether a question is one of policy or not shall be final.

It may be noted that the order passed by the Whole Time Member is a quasi judicial order in furtherance, to a direction from the Hon'ble High Court, Mumbai.. Moreover, this is a matter of regUlatory compliance between the market regulator and the regulated entity and not an issue of policy. Therefore, you may appreciate that it may not be appropriate for the Government to issue directions to SE.BI in the matter. I am also enclosing SEBl's reply to the points raised by you for your reference.

3.

With regards, Yours sincerely

(Pranab Mukherjee) Shri Suhil Kumar Singh Member of Parliament (Lok Sabha) 16 A Ferozeshah Road New Delhi

Enel: As above

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