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JPC calls for action against Sebi EDs over CSE crisis

Rakesh P Sharma & Janaki Krishnan in Mumbai

The Joint Parliamentary Committee probing the market crisis of March 2001 has come down heavily on the Securities and Exchange Board of India for failing to avert the payments crisis on the Calcutta Stock Exchange despite having been aware of the violations and irregularities in the exchange for many years.

The JPC has recommended action against the Sebi executive directors in charge of secondary market activities and in the surveillance department during 1999-2000.

According to the committee, these directors were not able to ensure compliance with the recommendations in the (exchange) inspection reports in those two years and "for not taking punitive action against the exchanges."

Strict action has also been recommended against Sebi officials who functioned as nominee directors on the board of CSE during the relevant period, for not ensuring compliance with the instructions contained in the Sebi circular of July 2, 1999 and for not reporting the exchange's non-compliance to the regulator.

The committee has also sought explanations from the inspecting officials who were assigned to conduct inspections of the Calcutta Stock Exchange during 1999-2000.

These officials, the committee has noted, "failed to detect non-inclusion of crystallised long position in the outstanding position of the brokers and strict action should be taken against them for dereliction of duty."

"The reasons on account of which each of the nominee directors of Sebi failed to attend the meetings of the board of CSE during the last five years may be gone into by the ministry of finance and strict action be taken against those who remained absent without any cogent reason," the committee has said.

The committee, taking note of the payments crisis on the CSE in March 2001, pointed out that while inspections in previous years had repeatedly revealed irregularities and violations, these remained unrectified and Sebi officials also failed to enforce the remedial action suggested.

"Ultimately these very factors are found to have contributed to the payment crisis of CSE," the JPC notes in a draft version of its final report.

Further, "the committee fails to understand why Sebi had not thought it necessary to take punitive action in the event of non-compliance with its inspection recommendations within a time frame."

Urging Sebi to augment its staff strength, it has also said that the "performance of Sebi's nominee directors in discharge of their role is anything but commendable."

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