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IPO scam: Apex court gives SEBI 2 weeks to reply

Press Trust of India New Delhi | Updated on February 21, 2011

Seeks explanation on rejection of committee report

Expressing concerns over the capital market regulator's outright rejection of a high-powered committee report probing the IPO scam of 2006 and the role of the National Securities Depository Ltd (NSDL) in it, the Supreme Court on Monday asked SEBI to give its stand after two weeks.

Besides, the Bench comprising Justice Mr R.V. Raveendran and Justice Mr A.K. Patnaik said that the report submitted by the Committee, which comprised senior SEBI officials, should have been considered by the regulator.

“Committee's report should have been taken into consideration. Instead of taking action, you sidelined the report,” the bench said, adding “This is a committee of SEBI members only and not of outsiders. Why did they say that it is non-est (does not exist).”

The apex court was also not convinced by submissions of the Attorney General Goolam E Vahanvati that the committee exceeded its limit.

The bench shot back, “we would like to see. Show us a single order given by the committee in NSDL matter (where it) exceeded its jurisdiction.

“Whatsoever they said (against SEBI) was self-retrospection and this is not wrong. You could not have ignored,” the bench said.

The Committee had also passed remarks against the manner in which SEBI had functioned in the IPO scam.

To await SEBI view

Over the submissions of the Attorney-General that Mr C.B. Bhave was no longer chairman of the Securities and Exchange Board of India, the bench said,” even if Mr Bhave is not there, whatsoever suggestion the committee has made, you (SEBI) should take a decision over it. Consider the suggestion and think about the market“.

The apex court further said that at this stage it would not issue notice to any one and would like to await SEBI's view on this.

After the IPO scam, the Ministry of Finance had constituted a committee consisting of two SEBI members, Mr G Mohan Gopal, currently Director of National Judicial Academy, and Mr V. Leeladhar.

The committee passed three orders and found that NSDL had failed in its duty of supervising, investigating, monitoring data and directed (it) to conduct an independent inquiry to establish individual responsibility.

Moreover, the committee had given serious remarks over the manner in which SEBI was functioning and handled the entire episode. It noted that SEBI had failed to carry out its regulatory role adequately and recommended the market regulator to make a Code of Conduct for depositories.

The report was placed before SEBI on January 21, 2009, for action. However, the capital market regulator decided to withhold orders of the Committee.

Later, SEBI, on November 11, 2009, held that the findings of the committee were “outside the confines of delegation” and were without the authority of law. It further said, the orders were ‘null, void and non-est' and decided to look into the matter afresh.

On this, the apex court said, “How can an order be passed by a committee be non-est. If some thing is so called against SEBI, then you ignore it and if it (is) against IPO scam then you accept it.”

The apex court's direction came over a petition filed by an NGO, Social Action Forum For Manav Adhikar, alleging that Bhave as SEBI Chief had extended “undue favours” to NSDL, in a matter relating to the IPO scam of 2006.

The NGO requested the Supreme Court to direct SEBI to implement the orders issued by the Committee and “order an investigation by an appropriate agency regarding various acts committed by C B Bhave in his capacity as Chairman Sebi so as to do undue favours to NSDL“.

According to the NGO, Mr Bhave gave undue favours to NSDL in the IPO scam.

It had moved the SC after the Delhi High Court in its order on September 29 dismissed the NGO's plea and imposed a cost of Rs 50,000 over it for unnecessary litigation.

Published on February 21, 2011

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