An explanation to the Supreme Court on why the Securities and Exchange Board (SEBI) had rejected its own special committee's report on National Securities Depository Ltd's (NSDL) role in the public offer scam of 2003-05 is likely to be discussed at the SEBI board meeting scheduled for Tuesday. Other likely issues to be considered are the Achuthan takeover committee report and Cairn Energy's open offer.

Of particular curiosity will be the NSDL issue. Apparently, SEBI officials in charge of market intermediaries are working overtime drafting a reply to the Supreme Court for approval by the board.

The history of this case goes back to the SEBI's investigations into the public offer scam of 2003-05 in which NSDL's role was being probed. Then, Mr C.B. Bhave had been heading NSDL. On Mr Bhave's appointment as head of the SEBI in 2008, to avoid any conflict of interest, a special two-member committee was constituted to look into the SEBI's proceedings against NSDL.

This committee in December 2008 passed three orders containing adverse findings on NSDL in the scam. It also said NSDL should conduct an enquiry to establish individual liability in the case. However in August 2009, the SEBI board, after seeking legal opinion, decided that the committee had commented on SEBI's shortcomings, which it said was outside the confines of delegation and without authority of law.

The board said these findings vitiated two of the three orders of the committee, which were consequently declared void. Later the SEBI board sat afresh on the NSDL case and finally disposed of two of the cases against it, exonerating the depository. An NGO, Manav Adhikari, moved the Supreme Court in February this year, against the manner in which SEBI had disposed of its own special committee report, declaring it void. It also asked for “an investigation regarding various acts committed by Shri C.B. Bhave in his capacity as Chairman SEBI, so as to do undue favours to NSDL”.

The Court asked the SEBI to explain why it had rejected the report. And this explanation is what the Board may consider this week.

The matter for curiosity will be the stance of the persons who are on the SEBI Board currently and who were also on the Board when the committee report was declared void. “How can they change their opinion on the same matter? Or, will they recuse themselves from the case, saying their opinion is already given?” asked a regulatory expert.

The takeover code is likely to find itself on the agenda of the SEBI board. Industry representatives met Finance Ministry officials last week to help the Government formulate its views on the code before the matter went to the SEBI board for approval. Corporate India was opposed to the abolition of ‘non-compete fees' . It also had reservations on open offers for 100 per cent of the equity of the target company being compulsory, fearing it will help multinationals — given the financing options that they have — more than Indian companies.

There is a remote chance that the board may debate the Cairn Energy open offer issue. The SEBI had reportedly directed the acquirers, Vedanta group, to delete the put and call options and other pre-emptive rights in the share purchase agreement between Vedanta group and Cairn. Formally speaking, the matter is still “under consideration” by the SEBI and Government, but it may be discussed at the bard meeting, said sources.

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