Meandering investigation set back by sudden deaths (30 September 2001)  

Astrology, superstition, and sentiment play as much of a role in making investment decisions in the capital market, as stock tips and fundamental or technical analysis. Hence, the sudden demise of two key persons involved in the Scam of 2001 has unnerved the trading community. The first was M M Kapoor (50), executive director of UTI who passed away last week after a massive heart attack; the second to go was Nirmal Bang—the low key broker and market operator who died in a car accident caused by a tyre burst. Both Bang and Kapoor’s demise will leave behind a gaping hole in the investigation process, except for data and testimony that has already been recorded by the investigators.

Kapoor headed the market operations of UTI and his testimony would have been crucial to any investigation which aims at getting to the bottom of the nexus between market operators and UTI. Similarly, the 39-year-old Nirmal Bang with his multiple broking cards and nationwide network attracted large operators as well as small traders. His client list included Shankar Sharma of First Global, Anand Rathi, Ketan Parekh and a host of other not so well-known operators. Since each of the large operators mentioned above have multiple trading cards themselves, their transactions through Bang’s books show the vital role he played in the movement of money and creation of liquidity. Two consecutive deaths in two weeks was fuel for plenty of speculation; ominous comparisons were being made to 1992 with the untimely departure of Manohar Pherwani, the former chairman of UTI and the death in a road accident of S G Gadhe, the DIG who headed the CBI’s scam investigation.

But the facts are far more mundane than people’s fervid imagination. However tragic the deaths, there seems to be no trace of foul play. In fact, ironically enough, the scam investigation itself has lost steam and is progressing at a snail’s pace. The motley group of politicians who form the Joint Parliamentary Committee (JPC) are not even serious about real structural changes. For instance, one member recently asked a government official if it was really necessary to bring UTI under the supervision of Sebi. If the JPC fails to order a break up of UTI’s monolithic structure and to subject it to supervision by amending the UTI Act, then there is only one conclusion that can be drawn —that the government does not want to lose an important financial handmaiden.

It could be argued that the entire committee would not necessarily adopt one member’s view. But the worry is that no area which requires structural change and radical reform, has made any progress. For instance, the hunt for a new Sebi chairman (D R Mehta’s term ends in February 2002) and full-time members to the Sebi board is getting more bizarre every day. None of those who have been approached from the private sector or the existing market players wants the job of chairman or member of Sebi’s board. In both cases, there is no shortage of good possibilities, but the good guys want some assurance that politicians will ‘lay off’ and allow them to do their job. Somebody has now come up with an outrageous solution—that a three-member supervisory board should be formed to supervise Chairman Sebi and the rest of the gang on the Board of Directors! The three would be part-time members who will promise to devote at least half a day to the capital market watchdog. The names suggested are: Dr R H Patil, J J Irani and Deepak Parekh. This means that the supervisory board will have all the powers and absolutely no accountability at all. Is it any wonder than that nobody wants to be member Sebi?

So far, the post has been turned down by the chiefs of National Stock Exchange, National Share Depository Ltd and Crisil among others, while an academic and a private sector investment banker are yet to make up their minds. The situation is no different at the 23-odd stock exchanges. Most of the erstwhile broker-run stock exchanges are rudderless and in the red.

However, policy making seems to have come to a halt at Sebi whose entire focus is to canvass support from politicians to go easy on its spectacular supervisory failure that led to the scam. Only the OTC Exchange of India seems headed for a shut down, that too because its promoters have lost interest and the UTI chairman has decided to cut his losses.

So, what will the JPC say in its report? After all, its raison d’etre is not to dash off hundreds of questions to the regulators and haul them over the coals, but to find out why the scam happened and suggest ways to avoid it in the future. If the JPC listens to what the regulators have said, it may end up creating two or more separate lame-duck bodies to take on the supervisory role that Sebi, RBI and the Department of Company Affairs failed to perform. The ultimate irony is that each of these watchdogs have themselves suggested the creation of separate supervisory bodies in order to avoid responsibility.

The lesson? That JPCs serve no purpose other than to give a bunch of people across the political spectrum their hour in the limelight and access to India’s money managers and market operators. A golden opportunity to do favours and extract something in return.