IPO scam: Sebi does U-turn on Bhave

NEW DELHI: Cornered by the Supreme Court, the Securities and Exchange Board of India (Sebi) has agreed to restore orders indicting its own recently retired chief, C B Bhave, in the 2006 initial public offering (IPO) scam. In an affidavit to the Supreme Court on May 5, Sebi said it would "reconsider" the very orders it had declared as "non est" (invalid) in November 2009 when Bhave was chairman.

The affidavit annexed minutes of the April 26 Sebi board meeting disclosing its decision to reconsider those orders passed against Bhave in December 2008 "with a view to accepting the same".

The minutes admitted that this U-turn on the orders relating to Bhave's earlier avatar as chairman of the National Securities Depository Limited (NSDL) was in keeping with "the spirit of the observations" made by the Supreme Court on a PIL challenging Sebi's alleged bid to shield him in the IPO scam.

At the last hearing on March 28, shortly after Bhave's retirement, a bench comprising Justices R V Raveendran and A K Patnaik pulled up the Sebi board for preventing the orders against NSDL from coming into effect. While directing it to make amends, the bench asked the Sebi board to "pass an appropriate resolution and place it before this court for further consideration".

The orders now being adopted by Sebi came to light in March 2009 when TOI reported the failure of the regulatory body to publish them on its website even three months after they had been passed by a specially-constituted committee consisting of those who were then its part-time members: Mohan Gopal, director of the National Judicial Academy, and V Leeladhar, then deputy governor of RBI.

The purpose of entrusting the NSDL cases to this committee in August 2008 was to keep Bhave out of the decision-making loop on matters involving conflict of interest on his part.

In its December 2008 orders, the Gopal-Leeladhar committee held that NSDL's systems during Bhave's stewardship were so lax that tens of thousands of fake depository accounts were created to corner shares reserved for retail customers. The committee also directed NSDL to carry out an independent inquiry to establish individual accountability for supervisory lapses.

It was after sitting on these orders for almost a year that the Sebi board, reacting to a PIL in the Andhra Pradesh high court, came up with its unprecedented decision to overrule the quasi-judicial verdicts against Bhave. The reason it cited for its November 2009 decision was that the Gopal-Leeladhar bench had also blamed the IPO scam on regulatory lapses committed by Sebi.

Interestingly, despite agreeing to restore the orders against NSDL under SC pressure, the board is still opposed to the part where even Sebi is not spared for contributing to the IPO scam. In the minutes of its last meeting, the board reiterated its objection to the part of the orders relating to Sebi as they had been "passed ex parte without giving it any opportunity of being heard".

The activism displayed by the apex court is in contrast to the reaction displayed by the Delhi high court in October 2007 to the same PIL. The high court had dismissed the petition and slapped a fine of Rs 50,000 on the NGO, Social Action Forum for Manav Adhikar, on the charge of filing a frivolous case.