April 13, 2009

Will the SEBI Board isolate Dr.Mohan Gopal today?

Filed under: Uncategorized — Tags: , , , , , , , — Sucheta Dalal @ 8:40 am

The Securities and Exchange Board of India (SEBI) is all set to hold a crucial board meeting today in which, several many of its key directors including Chairman C B Bhave would be absent. The board will take the ‘extraordinary’ step of discussing and reviewing a board order on the National Securities Depository’s (NSDL) role in what is called the multiple IPO application scam. The order by bench comprising two independent members of the board Dr.Mohan Gopal ( a legal expert who heads the National Judicial Academy)  and  V Leeladhar (former Deputy Governor of the Reserve Bank of India) was issued on 4th December 2008 ad has been suppressed by the regulator for four long months with whole time members nit-picking about whether it has exceeded its mandate?

The question that is being asked is whether the board is being arm-twisted to protect the Chairman? I reported on the issue extensively and quoted Dr.K P Krishnan, Joint Secretary, Ministry of Finance on his views. He has been quoted accurately and has not objected to anything that I have written.

Dr.Mohan Gopal, who has brought SEBI’s suppression of his order to the public domain has now offered further clarifications on the issue, which make interesting reading even as the matter goes to the board. I am reproducing his letter verbatim.  

Dear Ms. Dalal

 

I was traveling. Returned to Bhopal yesterday and have now had the chance to take a quick look at your report.  

 

Here are a couple of factual points on matters attributed to Krishnan and involving me, just to set the record straight.

 

You report Krishnan as having said to you that the Orders of the Committee, “prima facie, far exceeded their terms of reference.”

 

I am assuming this is a misunderstanding of what Krishnan actually meant to say — because I just do not see how he could have said this to you. He has never once expressed such a view to me up to now. If he had such a view he would have surely conveyed it to me/the Committee months ago. Also, at the last informal meeting of the part time members several days ago, we had all agreed (including Krishnan) that the Orders should be made public and implemented and he did not once raise any objection on his part to the Orders (Mr. Goel could not attend but was informed of our decision and I have not been told that he disagreed). Nothing has changed since then as far as the terms of reference or the Order are concerned and I am sure that Krishnan will not change his position. In any event,  such an argument is utterly baseless and far fetched. The Committee has not exceeded its mandate which is to “take over and dispose of” ongoing quasi-judicial proceedings against SAT, dealing with all the issues raised in the proceedings. The Committee has not touched on a single issue that had not been raised or argued in the proceedings. In any event, no one has contended up to this time that the directions of the Committee (which is the only relevant part, ignoring the obiter) have violated its mandate. .

 

You say “According to Dr Krishnan, the two members were asked if they wanted to take note of SAT’s findings; they refused, saying it was a separate matter.”  He is right in that I was asked to change the Order – but it is simply not true that there was any reference to the SAT Order when this request was made. The request was first made to me before the SAT Order. In any event, such a request would be seriously illegal and unprofessional. No Quasi-Judicial Order is changed ex-post to reflect a subsequent SAT Order or for any other reason. In fact, the opposite is true — according to my information, these three Orders were suppressed from SAT  – had SAT had the chance to see the Orders their decision could well have been quite different.

 

You say, “Dr Krishnan says that, ordinarily, a report of such a committee would not go to the full SEBI board for discussion; but, in extraordinary circumstances, the board has the right to examine the order of a committee that has been delegated adjudication powers.” Again, I am sure Krishnan is misunderstood – he knows and would agree that there is no legal basis for a statement that under current law the Board can discuss an Order after it is issued by a Member and prior to its implementation and publication (in discussing the mechanism we had discussed and rejected the possibility that the Board could review any Order under prevaling law). Nor has he ever made such an argument to me so far. It is well settled law that the power of review has to be express; it is not part of implied powers. The Committee’s powers are identical to those exercised by any WTM. A 11B Order issued in accordance with the procedure established by the Board is SEBI’s Order (not the Committee’s Order) and, as a result, the entity issuing the Order – SEBI (not the Committee) becomes functus officio in relation to that matter, subject only to appeal to SAT by the other party.  It would have been different if the Committee was asked to report to the Board, rather than to “dispose of” the matter as was done in this case.

 

“Mr.Gopal will be isolated at the April 13th 2009 meeting”. I hope not!  I am confident that the part time members, who are all honourable men, will stand by their earlier decision that the Orders should be implemented and made public as required by the law – the Whole Time Members and the Chairman are excluded from the discussion.  I am sure we all share the same commitment to openness and transparency. Except in the rarest cases to protect investors (not to protect each other)  all our discussions should be publicly known. Nothing can ever afford to be secret in a regulatory organization – including all our interactions —  because it is in the darkness of secrecy that the cancer of corruption will take root and grow. Like SEC, I am of the view that we should make our Board meetings open to public observation.  If executive branch regulatory authorities are taking over traditional judicial roles (such as in this case which involves quasi judicial proceedings) we should surely adopt and practice the tradition of courts that all discussions and deliberations are held in open court.

 

My colleagues say that the Board is seized of this matter. This requires some clarification. The Board is seized of the matter only to the extent of the establishment of the general mechanism and the particular Committee. While this mechanism is in place, the Board cannot violate its own rules and “seize” the matter outside that mechanism. While attempts were made to get the Board to take up this matter contrary to its conflict of interest rules I am glad to say that no such decision to take this matter up has been made so far by the Board.

 

I very much agree that the minutes must reflect truthfully the discussions in the Board. I hope they will.

 

Kind regards

Mohan Gopal

 

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