Sebi to revisit NSDL clean chit in IPO scam

The Securities and Exchange Board of India (Sebi) on Monday informed the Supreme Court that its board has decided to reconsider its earlier clean chit to depository National Securities Depository (NSDL) in the years-old initial public offering (IPO) scam.

Replying to a notice from the apex court, Attorney General Goolam E Vahanvati on Monday said the market regulator’s board decided in a meeting held on April 26, to reconsider a special committee’s report, which had found NSDL at fault in the IPO scam. Sebi said its board had decided to reconsider the report submitted by the committee, with a view to accepting it.

The board had given NSDL the clean chit in the issue, despite a special committee to probe the matter finding the depository to be at fault in the case. The bench comprising R V Raveendran and A K Patnaik directed to list the case in July, saying it would see the outcome of the Sebi decision.

Sebi in its affidavit said, “The board of Sebi pursuant to the order of March 28, had reconsidered the order of the special committee dated December 4, 2008, at its meeting held on April 26 this year.”

“After detailed deliberations and keeping in view the spirit of the observations of the SC, the board decided to reconsider the decision. It would reconsider the report of the committee with a view to accepting the same,” it said in its affidavit.

The Sebi board meeting on April 26 was called exclusively to finalise its reply to a notice from the apex court.

The Supreme Court on March 28 had directed Sebi to reply whether it would revisit its decision to give a clean chit to NSDL in a major scam related to share allotment irregularities in various IPOs during 2003-2006. The court had directed Sebi’s board to pass an appropriate resolution and place it before the court.

NSDL was given the clean chit last year by Sebi, when its chairman was C B Bhave, who earlier headed NSDL. Bhave had recused himself from the Sebi board meeting in February 2010, when the NSDL matter was discussed, as he had previously been head of the depository.

Sebi’s board had given NSDL the clean chit after setting aside the order of the special committee, which had found NSDL to be at fault in the matter. The issue reached the SC after a special leave petition was filed in the apex court in this regard.

The leading national depository, which enables holding of shares and other securities in demat or electronic format, came under the scanner in 2006 after a probe into the IPO scam.

NSDL was accused of not following the best practices to detect opening of thousands of fictitious accounts in the name of retail investors for share allotment in IPOs during 2003-06. Some large investors had used fake documents to open these accounts to corner shares supposed to be allotted to retail investors.

The special committee, set up by the government to probe the matter and consisting of then Sebi board members Mohan Gopal and V Leeladhar, had in December 2008 asked NSDL to internally investigate and fix individual responsibility for the alleged irregularities related to the IPO scam.