SAT order spells relief for NSDL

The tribunal noted that the order asking NSDL to affix individual responsibility for its failures was unjustified

The Securities Appellate Tribunal (SAT) has set aside an order with adverse findings against the National Securities Depository Limited (NSDL), pertaining to its role in the initial public offer (IPO) scam which took place between 2003-05.

The tribunal noted the order asking NSDL to affix individual responsibility for its failures was unjustified, since NSDL had already carried out such an exercise without any findings of complicity with entities involved in the scam. The tribunal also took note of the fact that regulatory proceedings against Central Depository Services Ltd (CDSL) on similar charges had been scrapped.

“…the decision of the respondent to close the file in the case of CDSL on the basis of the SAT order and continue to proceed against the appellant inspite of the SAT order is unreasonable and unjustified,” said the SAT order passed on Tuesday.

The tribunal had previously ruled in favour of the depositories in January 2009, setting aside Sebi’s adjudication orders against them.

In its latest order, the tribunal noted the NSDL’s Board of Directors had constituted a committee to look into issues raised by Sebi. The committee headed by Dr. R H Patil as Chairman investigated issues relating to IPO irregularities and submitted a detailed report on June 10, 2006.

“…neither the two member committee of the respondent has found fault with the inquiry report of the appellant…nor has it recorded any reason on the basis of which fresh investigation to fix the individual accountability has been ordered,” it added.

The IPO scam involved the cornering of shares meant for retail investors through the creation of fake dematerialised accounts. These accounts were maintained at depositories including NSDL. The head of NSDL, C B Bhave, became chairman of Sebi while the matter was still under investigation. A separate two-member committee was to look into the same, with Bhave recusing himself from the matter.

The Sebi committee had passed the order against NSDL in December 2008. The regulator had subsequently held the orders to be void in February 2010. The Supreme Court asked Sebi to reconsider the order in May 2011, following which the regulator decided to enforce the orders.

NSDL appealed in SAT against these directions. They were set aside in the order on Tuesday.  

 “…we quash and set aside the impugned order dated December 4, 2008,” said the SAT order.

“This order, however, would not come in the way of the respondent to seek compliance of any other remedial measures that might be suggested by the respondent with a view to strengthen the depository system,” it added.