You need people with a nose for the market and should be able to regulate them. There is also a need for ‘quality people’ at the helm of regulatory bodies,’ Arun Jaitley, Commerce and Industry Minister. How correct. The Indian Express thought that Jaitley’s comment was significant enough to be published as its quote of the day on January 31, 2002.
Although the Minister wasn’t referring to any particular regulator, his comment about what is ideal is the exact opposite of what the reality is at India’s regulatory bodies. Except for the insurance regulator, who has earned the respect of regulated entities, all others are floundering under the influence of the Bharatiya Janata Party (BJP) regime. The electricity regulator is rarely heard of, the telecom regulator is reviled both by users and service providers and the capital market regulator seems in danger of sinking into a morass of indecision. I am however going to restrict myself to the capital market regulator, which under chairman G.N.Bajpai, seemed set to recover from seven years of directionlessness with regard to its regulatory and supervisory functions.
In one of his final interviews to the media, the previous chairman of the Securities and Exchange Board of India had alluded to pressure from corporate houses, presumably from politicians that they patronise through their funding. Is Bajpai under similar pressure? His recent actions and his strange inaction in certain matters are at such variance with his stated objective of improving the efficiency and supervision at Sebi that one is forced to ask a few questions.
Lets start with the manner in which Sebi has filled the long pending vacancies for two posts of executive director. Both its appointments have been greeted with amazement and disappointment within and outside Sebi. The first appointee, used to be a Company Secretary at Fibre Glass Pilkington (now merged with another company) where he was asked to quit. He forged the signature of the managing director in order to try to retain company accommodation. The company caught the fraud and filed a criminal complaint against him leading to his arrest. The company let the matter drop after he admitted to the forgery, vacated the premises and apologised.
Does this fit the ‘quality people’ requirement that Jaitley speaks of? How did none of this come up during the clearance by the Central Vigilance Commission (CVC) and police verification that are pre-requisites to the job? Although this account is entirely accurate, I am withholding the name of the ED-designate only because the matter has been brought to the attention of the highest level at the finance ministry and one expects them to act. The second appointee is no less colourful. He was rejected by several stock exchanges such as Bombay, Delhi and Vadodara for the post of (ED) ‘but is considered fit to be an ED at Sebi.
That is not all. He was the ED handling investment banking responsibilities at the Harayana State Industrial Development Corporation (HSIDC) when the institution was issued warnings by Sebi in connection with the quality of its issues. It was also responsible for helping several vanished companies into the market, say Sebi sources. Yet, Sebi’s own internal scrutiny before short-listing candidates for the post seems to have suppressed this aspect of the ED designate’s background. Does Sebi’s top brass and the finance ministry know about this? Certainly. In fact, several middle-level officials made it a point to draw the chairman’s attention to his track record. Will Arun Jaitley’s government act on the information to ensure that ‘quality people are at the helm of regulatory bodies’? We will have to wait and see. If potential employees are threatening to pose problem, then some existing ones are no less a headache.
Take for instance this divisional chief who had been suspended in the early 1990s in connection with corruption charges and has since been reinstated. This same official was invited by the Joint Parliamentary Committee (JPC) to hear his allegations against Sebi officials. In the last few months, the Oberoi Hotel in Mumbai has sent a written complaint to the Sebi chairman about his behaviour at the Jharkhand Chief Minister’s meeting for industrialists, which was held at the hotel. We learn that he had to be escorted out by the hotel staff. Similarly, the USAID, a United States government agency has also complained about his behaviour at a study programme organised by it in the United States. The only action taken by Sebi is to issue him a warning.
If the divisional chief’s behaviour outside the organisation is getting the regulator into trouble, then his arbitrary decisions while handling important portfolios is causing even more embarrassment. The official is in charge of the depositories and dematerialisation and the delay in ordering a secretarial audit of companies, which dematerialised shares before they were listed, is being laid at his door.
In a recent case, the official ordered that Dalmia Securities and Janata Sahakari Bank, whose registrations as depository participants are up for renewal, should not open any new account at the National Share Depository Ltd. However, no ban was imposed on them operating at the rival Central Depository of Securities Ltd. (CDSL). Sebi offered no explanation but the unofficial justification was that the CDSL registration had not come up for renewal. Dalmia Securities challenged the ban on its opening a NSDL Account before the Securities Appellate Tribunal (SAT) and recently won its case.
Setting aside the order, SAT called Sebi’s action ‘unreasonable’ and said its decision was taken in an ‘unjust and unfair manner’. The ban on Janata Sahakari Bank opening DP accounts was quietly revoked. This is only one example of the complaints against the divisional chief. But strangely enough, Sebi officials are almost scared to act against the official because of his tendency to make wild and salacious counter-allegations against his colleagues and his rumoured connections with powerful politicians from Andhra Pradesh.
Ironically enough, while the ‘quality’ of people at Sebi is getting to be a serious issue, chairman G.N.Bajpai’s is supposed to be especially skilled at Human Resources Development. Why does the ‘quality’ of Sebi senior officials become worthy of a discussion? Because investors should know what to expect from the regulator when they decide to invest in the capital market. Moreover, these details are unlikely to form part of any investor awareness programme that is kicked off by the Prime Minister or his ‘independent’ regulators.