IPO Scam: SAT asks Sebi to erase remarks against NSDL

The Securities Appellate Tribunal (SAT) today asked Sebi to expunge certain adversary remarks against the National Securities Depository (NSDL) made by a two-member Sebi bench in connection with the 2003-05 IPO scam.

"In this view of the matter and having regard to the interest of the securities market, we direct that the observations made in the impugned order (of the two-member Sebi bench), in so far as they are adverse to the appellant (NSDL), shall stand expunged," a SAT order said here today.

The two-member Sebi bench comprising G Mohan Gopal (director, National Judicial Academy) and former RBI deputy governor V Leeladhar, had passed a strongly worded order against the NSDL, directing it to carry out an independent enquiry to establish individual accountability for the failures of NSDL in the IPO scam.

The case relates to the Sebi probe into 21 IPOs that hit the market during the period between 2003 and 2005. The Sebi probe had revealed that shares reserved for retail investors were illegally acquired by various entities through tens of thousands of fake demat accounts and fictitious applications.

Last November, the Sebi board had nullified the orders of the special bench, following an external legal opinion it sought from C Achuthan, former presiding officer of SAT and a director of the NSE which is a promoter of NSDL.

Following this development, the former Supreme Court chief justice JS Varma had said the Sebi board decision to review and declare as 'non-est' two quasi-judicial orders passed by its two-member panel violated established legal and constitutional principles.

Interestingly, NSDL, criticised for irregularities in the IPO scam, was headed by CB Bhave during that period, prior to his appointment as the Sebi chairman.

NSDL had, then approached SAT with an appeal to expunge certain observations made by the two-member bench in its order dated December 4, 2008 as those observations "are adverse to the appellant (NSDL) and it is feeling aggrieved by those observations".

The SAT, in its today's order, has said it is satisfied that in the light of the directions issued by Sebi, "NSDL has revised its business rules and put in place additional procedures to deal with the accounts of the beneficial owners in the event of deactivation/termination of a depository participant."