Tuesday, May 24, 2011



Complaints against CB Bhave former SEBI chief
is not being taken seriously by the Prime Minister
office, but it was simply forwarded to the Union Ministry
of Finance to take suitable action. 

former SEBI chief CB Bhave  did not reply
to the letters from Finance Ministry
during his tenure. which has surprised 
the top echeleons of North Block.

Dr Madan Gopal  Director of 
National Judicial Academy analysed
the role of C B Bhave, and his note to Prime
Minister is reproduced below.6

Dr. G Mohan Gopal

December 24, 2010

Respected Prime Minister,

As an outgoing (part time, independent) member of the SEBI Board, I write to convey my strong concern about gross abuse of power and corrupt practices in the SEBI Board over the last two years to protect SEBI Chairman C B Bhave from being subjected to independent inquiry with respect to his actions as Chairman of NSDL during the IPO Scam.

My continuing objections to these illegal and unethical actions were unheeded.  I was isolated and threatened.  I brought issues to the attention of the Finance Secretary at an early stage, to no avail mainly because the representative of the Ministry of Finance on the SEBI Board (no longer with the Ministry of Finance) was an active part of developing and implementing the impugned actions.  In the best interests of SEBI and the securities market, I am writing to you and to the Finance Minister as a last resort as I leave the SEBI Board, in the hope that you will take necessary action to correct wrong doing and hold concerned people accountable.

Abuse of Power to Favour the SEBI Chairman

Parliamentary Committee and SEBI find failures by NSDL in the IPO Scam:  Mr. Bhave, currently SEBI Chairman, was Chairman of NSDL during the IPO Scam.  As you know, four years ago, parliament’s Standing Committee on Finance on the IPO Scam investigated the IPO Scam in which tens of thousands of retail investors were cheated and crores of rupees of illicit profits were made by operating tens of thousands of fraudulent accounts in the depositories (NSDL and CDSL).  The 43rd Report of the Committee on the IPO Scam found that the depositories had “failed to exercise due diligence”, and had acted “in a casual and perfunctory manner”.  The Committee found it “very disturbing that NSDL was aware of the irregularities in connection with opening of accounts from the year 2003”.  The Committee asked SEBI to “expedite its investigations and take suitable action against concerned entities involved in the IPO scam”.  The Committee asked that “the role of such entities …should be investigated thoroughly and deterrent punishment awarded befitting the irregularities committed”.  The Committee also expressed the concern that the irregularity “should not be played down”.

Prior to Mr. Bhave joining SEBI (in February, 2008), SEBI had initiated several proceedings against the depositories for their role in the IPO Scam.  Each of these proceedings found failures on the part of NSDL.  In an April 2006 ex-parte interim order, SEBI said that depositories “failed to exercise oversight over the depository participants” and the promoters of NSDL were directed to take “all appropriate actions including revamping of management”.  Following an appeal by NSDL, this order was stayed by the Securities Appellate Tribunal (SAT), the appellate tribunal that hears appeals against orders passed by SEBI.  In November 2006, SEBI passed a separate order against NSDL and a few others asking them to disgorge a sum of Rs. 115.82 crores for alleged carelessness in opening of demat accounts.  Of this, NSDL’s share was Rs. 45 crores.  NSDL filed an appeal with SAT against this Order.  SAT asked that the disgorgement proceedings be postponed until after completion of the inquiry and determination of guilt.  In April 2007, SEBI imposed a penalty of Rs. 5 crores on NSDL and Rs. 3 crores on CDSL for negligence in opening demat accounts.

In January, 2009, in an order approved by the SAT Chairman but written by a single non-legal member, SAT set aside this penalty SEBI order that penalized NSDL and CDSL.

SEBI Exonerates NSDL after Bhave joins SEBI:  As noted above, every single investigation of the IPO Scam prior to Mr. Bhave joining SEBI had found failures in NSDL’s role under his leadership during the IPO Scam.  After Mr. Bhave took over as head of SEBI, however, there has been a stunning reversal of SEBI enforcement actions against NSDL – all SEBI actions against NSDL in relation to the IPO Scam have been either stopped, dropped or reversed.  Instead, NSDL was praised and exculpated of all liability.  “SEBI-under-Bhave” judged and exonerated “NSDL-under-Bhave” through a process that was thinly disguised as independent, but was, in fact, deeply vitiated and subverted.

The only decisions that found NSDL guilty after Mr. Bhave assumed office in SEBI were three decisions of a two member quasi judicial panel (of which I was a member) which was established by the Board, pursuant to a conflict of interest mechanism, to independently adjudicate matters pertaining to NSDL’s role in the IPO Scam under Bhave.  As soon as this committee reached a finding that NSDL was guilty (in line with all the earlier findings referred to above), the Committee was subverted and not allowed to function.  Its quasi judicial orders were illegally intercepted, suppressed, nullified and findings against NSDL were expunged.

An informal clique of current and serving bureaucrats, SEBI officials, lawyers and corporate interests orchestrated this subversion of the due process of law.  They illegally interfered with independent SEBI adjudication, manipulated legal opinions, suppressed and misrepresented facts and misled the SEBI Board and Government officials about the legality of the Orders.  Law, regulations and established precedent were violated.  NSDL was given undue special treatment.  NSDL was relieved of a fine of crores of rupees; and SAT decisions adverse to SEBI but favouring NSDL were not appealed to the Supreme Court as they should have been.

One of the most shocking and unprecedented actions taken by SEBI to exculpate NSDL was the Board – for the first time in SEBI’s history – setting aside quasi judicial orders which are, under the law, subject only to judicial review.  This action was described by one of India’s most eminent and respected jurists (a former Chief Justice of India) as “violat(ing) established legal and Constitutional principles” on the exercise of judicial power.  I personally circulated this public statement of the highest importance to my colleagues in the board – however, it was entirely disregarded with no concern to address the issues raised.  Commenting on SEBI’s brazen exoneration of NSDL, a leading financial paper said, “It beggars belief that no eyebrows were raised at any stage about literally thousands of individuals demat accounts being registered at the same address.  The processes of NSDL and CDSL undoubtedly required review and investigation.”

It is a sad commentary on SEBI that some four years after the parliamentary Committee’s finding of serious wrongdoing, none of the major figures responsible for the IPO Scam have been held accountable.  Instead, the regulator has been bending over backwards to help one of the key entities that has been found to have failed in its responsibilities escape scrutiny and accountability.  If so desired, I will be happy to furnish you with further details.

Legal Framework for Securities Regulation: Four Structural Issues

Four structural fault lines in the legal framework for securities regulation made this abuse of power possible.  As the Indian securities market seeks to better respond to the regulatory needs of an expanding global market, these structural issues require urgent correction.

Inadequate transparency; public accountability; and parliamentary oversight:  SEBI does not have adequate transparency, public accountability and parliamentary oversight as a safeguard against abuse of power.  For example, as against the United States’ Securities Exchange Commission (SEC) meetings that are open to the public, SEBI Board meetings are held in secret.  The US Senate exercises close scrutiny over the working of SEC, details of which are available to the public.  There is no comparable oversight in India.  SEBI Board meetings should be made public.  There should be strict requirements for regular public reporting by SEBI of all details of its actions and decisions.  There is no explicit framework for whistleblower protection (as a whistleblower Board member I was subjected to retaliation and attack without any protection).  There is also an inadequate system for responding to serious public concerns about violation of law in the securities market, or complaints against SEBI decisions.  There is a serious deficit in investor voice, essential for effective governance.  SEBI needs to encourage investor voices instead of being hostile to them unless they are friendly in which case selective patronage may be extended to them.

Lack of protection against conflicts of interest:  SEBI does not have adequate protection against conflicts of interest of Board members and the Chairman.  At any initiative, a code of conduct for members and mechanism for conflict of interest of the Chairman were established by the Board.  However, the latter mechanism was violated and then dismantled in the context of the NSDL matter to enable Whole Time members who report operationally to the Chairman – explicitly excluded by the mechanism – to participate in decisions to favour the Chairman.  A key official of a private corporate regulated entity is a member of the SEBI Board (Mr. Mohandas Pai of Infosys).  He and his company are subject to the regulatory power of the Chairman and Whole Time Members.  This naturally creates a shadow of doubt – justified or unjustified – over the independence of any decision making by this member on matters concerning the interests of the Chairman or involving in the interests of his company.  In the event, he chaired quasi judicial proceedings against NSDL with respect to its activities under C B Bhave and these proceedings resulted in decisions in favour of NSDL and Mr. Bhave’s interests.  The Board generously excused the conflict of interest arising from a business relationship between Infosys and NSDL even while Mr. Pai was chairing proceedings against NSDL.  In principle, therefore, these decisions are vitiated by conflict of interest irrespective of the merits of the decision.  Also, it was perhaps for the first time in Indian history that judicial power was exercised by a serving private sector corporate official.  As a result of these conflicts of interest, an influential bureaucrat-corporate-media nexus has emerged that has immense power to influence SEBI decision making to its own advantage.

Ineffective framework for law enforcement:  The structure for law enforcement in SEBI is seriously flawed.  There are overlapping enforcement and punitive provisions in the Act which need to be rationalized.  A regulated entity – such as in this case – may be subject to multiple proceedings without a clear distinction between various proceedings.  SEBI officials combine investigative, prosecutorial and judicial functions without required separation of these powers, violating basis principles of natural justice and creating opportunities for abuse and rent seeking.  SEBI exercise of quasi judicial power is not compliant with the standards laid down by the Supreme Court for the exercise of such power.  Major violations of securities law established through SEBI investigations are excused without punitive action through opaque consent orders and faulty adjudicatory orders favouring wrongdoers – in such cases review by SAT or courts would never be sought because neither the favoured wrongdoer not the errant decision maker has any incentive to seek review.  Investors at large and the market are the voiceless victims.  An example of ineptitude is a decision by a Whole Time member in which, having established criminal market manipulation by a company, the Whole Time member’s decision was to request the company to be more careful in future!  SEBI’s system for enforcement of law is to be contrasted with, for example, the US SEC system in which SEC brings hundreds of civil enforcement actions in federal court or before an administrative law judge.  SEC works closely with law enforcement agencies in the US and globally also to bring criminal cases.  This separation of SEC’s investigation and prosecution function from adjudication – which is in the hands of federal courts, criminal courts or specialized administrative law judges in SEC, is in marked contrast to SEBI’s half hearted and non-expert approach to law enforcement which, as we have seen in the NSDL case, is easily subverted.  The SEBI Board does not have adequate focus and priority on law enforcement as it should (the SEC declares, for example, that “first and foremost, the SEC is a law enforcement agency”).  It is this lack of commitment to law enforcement that permits SEBI to bend backwards and violate the law to protect a favoured regulated entity rather than pursue it to enforce the law.

Outdated Governance Structure:  The governance structure of the SEBI Act, designed in the earliest days of liberalization, is badly in need of being professionalized and made genuinely independent.  It contains too many explicit and implicit levers of bureaucratic and political control of the regulator on one hand and too little public oversight, transparency and public accountability on the other hand.  SEBI is in effect run by an informal caucus serving or former civil servants rather than domain experts.  The last representative of the Ministry of Finance on the SEBI Board exercised an undue influence in the functioning of the independent regulator through informal back channels through which SEBI officials were funneling information and documents to him which he legally should not have had access to.  The Government’s interaction which the regulator should be “over the counter” and not “below the table”.  SEBI (and its sister concern NISM) command huge financial resources with little accountability and transparency in its use.  The SEBI Board lacks relevant expertise.  This is because the Board is dominated by “babus” – serving and ex-bureaucrats.  In contrast, US SEC Commissioners are all very experienced and specialized financial regulators and/or experts in securities law.  Each of them is legally qualified and has many years of distinguished experience in the business of financial and securities regulation.

I request that a high-level independent inquiry be ordered into SEBI decisions in relation to NSDL during the tenure of Mr. Bhave.  I would also request that the issues of structural concern I am identifying here be looked into.  I request the urgent personal attention of yourself and the Government to these matters in the interests of securing and strengthening our securities market which plays a vital role in the growth and development of our country.  Needless to say, I stand ready to assist and cooperate in any manner.

With kind regards,

          Yours sincerely,

G Mohan Gopal

Monday, May 23, 2011



By R Rajagopalan

Prime Minister Dr Manmohan Singh is set to give six months
extension to his Cabinet Secretary KM Chandrasekhar.
Insiders say that Dr Singh wants to bring Rahul Khullar
to the exalted position. But there are three officials who
are much senior to Khullar.

PM left for Ethiopia without making a successor plan
of KM Chandrasekhar.For senior position like Cab Sec
a month of training is given to the new appointee
as OSD. PM returns on Sunday and from then one fortnight
is left for a new face. Since there is not exercise done
at the highest level of bureaucracy, it is taken for granted
that KM Chandrasekhar get fourth extension.

UPA2 has completed seven years, but had just only two
Cabinet Secretaries. BK Chaturvedi and KM Chandrasekhar.

The Union Cabinet is likely to amend the Civil Service rule
further once Prime Minister returns from Ethiopia visit.
If such provision is incorporated, KM Chandrasekhar will
go down in the history of having served the longest
Cabinet Secretary by circumventing other contendors.

This exercise has been carried out to provide Dr Singh's
pet official Rahul Khullar to succeed KM Chandrasekhar.
Khullar is 1953 born, he can go upto 2013.There are two more
seniors in 1975 batch with Khullar like Rentala Chandrasekhar
and Sindhushree Khullar. 

1973 and 1974 IAS officers are cursing the UPA2 with their
teeth tight, as Cabinet Secretary position was stuck with
1970 lucky batch. And no forward movement. 


Wednesday, May 18, 2011

heard so in corridors of power

Heard so

for publication on Sunday May 22, 2011


R Rajagopalan
Suspense continues over Governors Conference slated in June.
Will it be held or not? Invitations are yet to be despatched.
Governors Conference means massive exercise for Union Home
Ministry and President Estates to coordinate two days event.

PMO is silent on this. Not indicated date
and time to President Secretariat. Reason, Sardar Surjit Singh Barnala
Sardar Iqbal Singh and Pandit Hansraj Bharadwaj hitting the headlines.
Controversy over roles of Governors.

Governors in North Eastern States had already taken fortnight 
holiday and resting in Kerala and in Tamil Nadu.  But the real issue for President
Secretariat is. Selection of Doyen of Governors who had put in longer years
as Governor. The only one is S S Barnala. 
Drinking water pipe burst on Wedensday near 24 Akbar Road, the headquarters of AICC and also
the chiefs of armed forces. But the worst affected VVIP is obviously the Vice President
bungalow. Water Scarcity emergency calls were made.Supply was restored after
quick response team arrived at the spot 
D Raja CPI MP bad experience at the Jayalalitha swearing in ceremony. In the crowd
he lost one chappal. In an anger Raja threw out the other chappal too. Walked without
footware. Noticing it, Sarath Kumar Cine actor asked D Raja to travel in his car
and bought him fancy footware.
Karunanidhi plans to resign as Chief of DMK, but pave way for MK Stalin
to be installed as Chairman of the DMK General Council presidium.
An emotional high pitch drama is slated to be enacted in Chennai on Monday
when the highest policy making body of DMK meets, after poll debacle.
Best lighter vein joke. Who will be foreign secretary. A Sardar or a Mallu?
The tug of war is between Ranjan Mathai and Hardeep Puri. Both belong
to 1974 IFS seniority and both were born in 1952. PMO nor Foreign Secretary
want to express their view on selection process, as it involve two powerful
New Delhi corridors of power is agog with speculation about
the increase of retirement age of Union Government employees
to 62.
KM Chandrasekhar Cabinet Secretary is being tipped for the slot of Indian Ambassador
to United States of America. Though the retiring foreign secretary Nirupama Rao is also in
the race, the political leadership wants to give such a elated position to KM Chandrasekhar
as he handled meticulously the Nuke deal issues in Cabinet meetings further in Parliament.

Sunday, May 15, 2011



By R Rajagopalan

Jayalalitha has begun to wear ear studs-jewel from yesterday.
She has avoided using it, as she taken a vow-that she will
wear such costly jewels once she returns to power.
Jaya was seen wearing costly ear studs when she drove
to Raj Bhavan on Sunday to stake claim to form Government.