SEBI is supposed to be the market regulator in India. Their main objective is to safeguard the interest of investors vis a vis operations in share market. In the case of Sathyam fraud SEBI is running from pillar to post to get statements recorded from its Chairman and MD. On 7th January, 2009 Sathyam Chairman B. Ramalinga Raju wrote a letter to the Board of Directors of Sathyam as well as to SEBI and Stock Exchanges revealing fudging of accounts involving several thousand Crores. The Share price of Sathyam nosedived to Rs.6.30 in National Stock Exchange and slightly recovered at the time of closure of market on that day.
Taking cognizance of this letter SEBI summoned the Raju brothers to appear before them at 4pm on Saturday the 10th of January, 2009. In the meanwhile the Rajus were taken to custody by the local police. SEBI was not allowed access to Raju brothers by the Police thus preventing SEBI from recording any statements.
SEBI sought legal remedy by filing an application before the Metropolitan Magistrate Court in Hyderabad requesting permission to record statements from Raju brothers. The sixth Additional Chief Metropolitan Magistrate rejected this application on the ground that the application was not maintainable and that the court has no jurisdiction in such matters and did not permit SEBI to take custody of Raju brothers even for a day to record statements from them. SEBI was asked to explain its legal position on maintainability of the petition which SEBI could not convincingly give.
Aggrieved by this SEBI has filed a petition before the Hon’ble Andhra Pradesh High Court to allow them to record statements from Raju brothers. The hearing is in progress.
SEBI is primarily formed to regulate stock market and related activities. They have complete control over stock market intermediaries like stock brokers, sub brokers etc. As per Section 11C of SEBI Act, 1992 SEBI can only direct any person to investigate the affairs of any intermediary or persons associated with the securities market.
Under the circumstances the moot point is whether Raju brothers are persons associated with the securities market. Merely because the shares of Companies in which they are directors are listed in stock exchanges one cannot say that they are associated with the securities market.
SEBI’s main role is to protect the interest of investors. If they doubt insider trading they can ask all the stock exchanges to provide the trading data (which are readily available with stock exchanges) and find out the malpractice, if any. As per SEBI Rule, if anybody wants to do business through a stock broker they have to necessarily register with them and get their client Id. Mandatorily one has to give their identity and PAN to Depository Participants if they want to operate DMat accounts. Stock brokers have to put the client Id while executing the orders of clients.
Thus it can be seen that trades can be verified by SEBI just by keeping track of client Id, Dmat number, PAN etc. Even after three weeks from Raju’s letter SEBI is more interested in recording statement from Raju brothers than to investigate the share dealings in Stock market to find out the persons who made huge profit due to insider trading. This has raised the eyebrows of persons who are closely watching Sathyam affairs. So far SEBI has not come out with figures in respect of persons who made a killing with the help of inside information of the things to come.
Sathyam shares were coming down for quite sometime due to MAYTAS affair. At this time SEBI did not bother to record statement from Raju brothers. Lakhs of investors lost heavily due to the decline in Sathyam shares. What step SEBI took to protect the investors’ interest is anybody’s guess.
Sathyam shares tumbled overnight after Jan 7th reveletions by Ramalinga Raju. Crores of money were lost by thousands of small investors. It is definitely within the purview of SEBI to pass disgourgement orders after due verification. Instead of doing this SEBI wants to show that they are also on investigation spree and are taking steps to protect investor interest. This is like Indian Snake charmers’ promised fight between mongoose and snake which will never happen. What for is this game is anybody’s guess.
SEBI is under a wrong impression that their powers are sky high. Careful reading of provisions of SEBI Act, 1992 will reveal that their purview is only stock market related activities and stock market related persons like intermediaries.
There are vaious other agencies to take charge of perpetrators of fraud, be it through accounts or other means. SEBI is really wasting its precious time in unnecessarily going from Court to Court to record statements from Raju brothers which does not seem to be within its purview. Instead it is better, in the interest of investors, that SEBI sticks to its mandate for which it was formed and enshrined in SEBI Act, 1992. That is to deal with perpetrators of fraud in stock market dealings with iron hand thereby really taking steps to protect the interest of investors.
They can also cooperate and exchange information with other investigating agencies so that justice is rendered fast to investors.
On several occasions SEBI’s move amounted to Corporate Tress pass. One such incident being appointment of Three Member Committee to manage the affairs of Coimbatore Stock Exchange with least respect to Corporate democracy and good corporate governance. It is reliably learnt that the duly elected six directors of the Stock Exchange could not have access to any of the documents of the Company including account books, vouchers, bank statements etc. It is also reliably learnt that SEBI did not respond to the complaint lodged by the directors as well as Coimbatore Stock Exchange Members’ Welfare Association.
What the democratically elected directors of Coimbatore Stock Exchange is facing (complete denial of access) now SEBI is facing in Hyderabad.
It is high time that SEBI mends itself and off load its big brother attitude and strengthen its legal wing to avoid Waterloos like Hyderabad. It should learn to appreciate and respect others’ rights and privileges and should have a practical view of a situation. It should avoid taking hasty decisions based on hearsay without verifying facts. This alone will make SEBI a respectable organisation.
SEBI’s success lies in identifying the persons who made huge profit in Sathyam imbroglio and pass disgourgement orders against them without any fear whoever be the culprit. Let us hope SEBI is not an insider in enquiring about insider trading. Jai hind
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