The Hindu Business Line : SAT stays SEBI directive to NSDL

The Securities Appellate Tribunal (SAT) on Monday stayed a SEBI directive in the recent IPO investigation order to National Securities Depository Ltd (NSDL) to revamp its management.

The SAT has said that the regulator has no power to issue directions to the promoters of a company on revamping management.

In a two-page interim order signed by the Presiding Officer, Mr Justice N.K. Sodhi, and Member Mr R.N. Bhardwaj, the Tribunal said: "The directions issued in 17.14 of the impugned order directing the promoters of the appellant to revamp the management will remain stayed during the pendency of the appeal."

The SAT passed the interim order after hearing the plea by NSDL on SEBI's interim order on the IPO allotment scam dated April 27, 2006.

In the 17.14 section of the IPO investigation interim order, SEBI said: "Interim findings in this order demonstrate the contributory negligence on the part of the depositories and their management. It is clear that there have been grave management lapses leading to such a situation.

"It is the responsibility of the promoters to ensure that the depositories are properly managed in the interest of the investors. To that end, the promoters of NSDL and CDSL without further loss of time are directed to take all appropriate actions including revamping of management, which clearly has allowed matters to come to such a sorry pass."

The promoters of NSDL are IDBI, the NSE and UTI. Other shareholders include SBI, Oriental Bank of Commerce, Citibank, Standard Chartered Bank, HSBC, Dena Bank and Canara Bank.

The SEBI order had further said that the "periodical inspection of DPs being done by the depositories appears to be merely a cosmetic exercise.

"It is unbelievable that thousands of demat accounts in fictitious/benami names got opened by Karvy DP, Pratik DP, and other DPs, in utter disregard of the KYC norms laid down by the SEBI, presumably the same could have taken place either with the connivance of the depositories or depositories turning a Nelson's eye to the happenings in the depository system."

Setting aside the SEBI directions, the SAT said: "One of the primary grievances made by the appellant is that even though the impugned order is interim in nature, pending final investigations, the board has recorded firm findings on the issues involved therein, which will prejudice their cause.

"We have perused the impugned order and it is clear there from that findings recorded are only prima facie. We have no doubt that while passing the final order, the board will not be influenced by these findings and that the said order will be based on the materials collected by it during the course of the investigations including the one which is already in its possession."

Sources said that Mr Justice Sodhi, during the proceedings of the case, asked the SEBI to complete the final orders by August 31.

However, this was not recorded in the order.

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