PITY, FAILURE & CONFLICT

THIS SAD STORY IS OF THE CONCLUSION, the arrival of which portrays stock market regulator SEBI’s benevolence for the wrongdoers – and a grave conflict that the judiciary and government must note.

- Palak Shah

When the opinion of just one officer (lacking judicial experience) turns a big scandal into ‘nothing’ in the face of screamingly admitted legal facts and blatant ignorance of guidelines of the Supreme Court (SC) regarding the application of laws, only a review of such a verdict can restore confidence in institutions. Logic and law says that if any able cop turns a blind eye and also enables robbery in full public view by relaxing security arrangements, he is in connivance with the robbers. But in the eyes of SEBI, if NSE officials like the cop, feign ignorance when brokers ran roughshod in the exchange’s Colocation trading facility, they were not in connivance even though the exchange is legally considered the First Level Regulator responsible to secure the trading systems.

A broker, OPG Securities, is subject to disgorgement of illicit wealth worth Rs 85 crores generated through unfair trading at NSE. But despite the knowledge of the robbery and having provided a cover to the broker, not a single NSE official is deemed to have colluded with the broker, the SEBI concludes. The Supreme Court of India’s (SC) test of ‘Preponderance of Probabilities,’ which is otherwise extensively used by SEBI in most matters to nail conspirators, was not applied fairly in the colocation case. A pity.

The Plot

Did SEBI cover-up for NSE? Justice Tarun Agarwala, the former presiding officer of Securities Appellate Tribunal (SAT), said so in his most scathing observations:

“Before we conclude, we must observe that when serious allegations were made against a First Level Regulator, namely, NSE, SEBI should have been proactive and conducted the investigation seriously. We find that SEBI had adopted a slow approach and, in fact, was ‘placing a protective cover’ lover NSE’s alleged misdeeds.”

When did SEBI wake-up to the scam?