Sebi removes three public interest directors in VSE, reinstates MD

Crisis led to removal of three public interest directors including chairman

Normalcy has been restored at the Vadodara Stock Exchange Limited (VSEL) after a controversy triggered between the governing board and the managing director. It was after the regulator sacked three public interest directors (PIDs) including the chairman of the board and reinstated the incumbent managing director, things turned normal.

In a letter dated October 15, the Securities and Exchange Board of India (Sebi) directed the governing board that G Someswara Rao would continue as MD of the exchange and discharge all his duties in this capacity.

Hitting at the governing board and especially the Sebi-appointed PIDs, Sebi noted that former chairman, Mukund Shah and other shareholder directors were taking active part in day-to-day affairs of the exchange.

“The facts and circumstances indicate that the Board of VSEL has not allowed G Someswara Rao to discharge his duties and therefore, your action (of removal of MD) is not in accordance with the SECC Regulations,” Sebi stated in the letter.

The controversy surrounded the defunct regional stock exchange (RSE) on October 7, when the board of directors of the exchange forced Rao to resign and replaced him with the acting managing director M G Shaikh.

This followed by Rao filing a complaint with Sebi alleging the board to forcefully getting him resigned. A two-member Sebi team visited the exchange on October 9 and initiated inquiry in the matter thereby sacking the chairman Mukund Shah. This was followed by termination of the other two PIDs, Nilkanth Jani and Dhiren Mehta.

VSE sources informed that once sacked by Sebi from the PID, the person would not be on board of any other exchange or a listed entity for a period of two years.

“Sebi has criticized the role of PIDs at the exchange. The PIDs are appointed by Sebi as the watchdog and a representative of the stakeholders. But in case of VSE, they tilted their loyalty towards shareholder investors and created the entire crisis,” said a VSE source.

Currently, there are two PIDs and four shareholder directors on VSE board. “We feel this board has lost its credibility and has no moral right to continue. We have demanded to supersede this board. The board did not comply to Sebi rules and directions, which led to avoidable crisis,” said Vishnubhai Patel, president, VSE Brokers’ Forum.

“There are around 70,000 depository accounts at the VSE and thousands of investors are associated with it. This crisis caused fear among the investors, which dented not only the VSE’s image, but also caused financial loss to the traders associated with the exchange,” said Patel, an ex-chairman of VSE.

“Normalcy has been restored. I am given my chamber, mobile, car and all that was taken away by the board. Sebi’s inquiry has found that board’s actions were not in accordance with the SECC regulations and as per Sebi’s directions,” said Rao.