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In a rare instance, a multinational company will have to return to list in India. This is after French company Schneider Electric on Wednesday decided to withdraw its appeal against SEBI order in the Securities Appellate Tribunal (SAT).&nbsp;

The Schneider Electric case was the second instance in 2019, where the shareholders of an RSE (Regional Stock Exchange) listed company had moved SAT for ‘poor treatment’ of their complaint by SEBI. Following this, SEBI had asked Schneider to list on the exchanges or give an exit opportunity to its minority shareholders. Then, Schneider had challenged the SEBI order in SAT. But Schneider on Wednesday withdrew its appeal in SAT and decided to list.&nbsp;

Schneider was listed on the Bangalore and Pune stock exchanges, both of which subsequently closed down. Some shareholders had argued that under a SEBI circular, “it is mandatory for excursively listed companies on RSEs to seek listing on national level stock exchanges and, only for genuine reasons, alternatively, they can provide an exit option to the shareholders as per SEBI Delisting Guidelines/Regulations, after taking shareholders’ approval for the same within a time-frame to be specified by SEBI.”&nbsp;

In an order on January 19, 2021 SEBI had directed Schneider to either re-list on a nationwide stock exchange or provide an exit opportunity to its public shareholders through the delisting mechanism. This directive came after Regstreet Law Advisors represented a group of minority shareholders holding 9 per cent shares who had filed complaints with SEBI, leading to the order in January 2021.

Schneider had also approached the Bombay High Court in February 2021 requesting the court to set aside the SEBI Order. However, the Bombay High Court dismissed the writ petition on the grounds that challenging a SEBI order should be done before the SAT. Following this, Schneider approached SAT but eventually decided to withdraw its appeal today and agreed to comply with the SEBI Order to re-list the company.

In an order on January 19, 2021 SEBI had directed Schneider to either re-list on a nationwide stock exchange or provide an exit opportunity to its public shareholders through the delisting mechanism.&nbsp;


French company Schneider Electric drops appeal against SEBI, to re-list on Indian exchanges

The Multi Commodity Exchange (MCX)&nbsp;informed that iCOMDEX&nbsp;Bullion Index October 2023 futures contract, and crude oil 25 October&nbsp;2023&nbsp;Option contract, will be available for trading with effect from Monday, July 24. It also stated that the contract specifications and trading parameters of the said contracts&nbsp;issued by it earlier, shall be binding on all the Members of the Exchange and constituents trading through them.

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However, the technology-related woes of MCX&nbsp;are only getting worse by the day. Sources in the know said that earlier this week, market regulator SEBI had sought clarity on the implementation of the new technology platform that MCX was developing with TCS, as the exchange has failed to follow many earlier deadlines. Pending much clarity, MCX could be facing restrictions on the launch of any new contracts, the sources said.

Another source close to MCX said that SEBI has set a deadline for the exchange to implement the new technology by the end of September. All of these issues were discussed in the board meeting, both the sources said.

More than two years have passed since MCX appointed TCS to develop a new tech platform as it wanted to discontinue the services of its two-decade-old service provider, 63Moons (erstwhile Financial Technologies). For the count, It is the third time that MCX had to approach 63 Moons last month to extend the software support service arrangement after the long-term arrangement ended on September 30, 2022. MCX had selected the new technology service provider TCS way back in February 2021 but the implementation of the technology has faced significant delays. The extended contract of MCX with 63Moons is now valid till December 31, 2023.

On August 10, 2022, SEBI had written to MCX stating that it (new technology implementation) was a serious issue, which had to be assigned the highest priority and resolved timely. “Being a market infrastructure institution, it is necessary that MCX and MCXCCL ensure, on a continuous basis, that they have adequate infrastructure and systems in place to ensure the orderly execution of trades and timely clearing and settlement of trades as well as having online surveillance capability,” SEBI had told MCX.

MCX has witnessed a slew of resignations by chief technology officers (CTOs) in the last few years. After Rahi Racharla (designated as chief information officer) quit in August 2018, his replacement, Paresh Paul, who was appointed in February 2019, also quit in March 2021. This was followed by the exit of Manav Jain and Shashank Sathe, two other technology chiefs who came in after Paul. It is unprecedented for a large exchange in the midst of a technology transition. The uncertainty over a full-time CTO is believed to be a factor behind MCX's failure to firm up its Business Requirement Specification (BRS) document for TCS. MCX also does not have a full-time chief regulatory official (CRO), a crucial person who can give input on the implementation of the new platform as per SEBI norms.

The Multi Commodity Exchange (MCX)&nbsp;informed that iCOMDEX&nbsp;Bullion Index October 2023 futures contract, and crude oil 25 October&nbsp;2023&nbsp;Option contract, will be available for trading with effect from Monday, July 24.


MCX schedules launch of new crude oil contracts from Monday

The Securities and Appellate Tribunal (SAT) has directed SEBI to appoint another whole time member (WTM) to hear the objections of Punit Goenka and Subhash Chandra, promoters of Zee Entertainment Ltd (ZEEL). In SAT's view, this was being done to 'remove bias.'

Last month, SEBI WTM Ashwani Bhatia had passed an interim order against Goenka and Chandra, which had barred them from holding directorial or key managerial positions (KMP) in any listed company or its subsidiaries. In its order on Monday, SAT observed that Bhatia was the same WTM who had passed another order in April against an entity linked to the Zee group promoters. Bhatia was also part of the committee that rejected Goenka and Chandra's settlement plea in the current matter. SAT observed that there was a possibility of the WTM being influenced by the discussions that took place in the settlement proceedings.

"In our opinion WTM is required to focus on the material evidence which is on the record and should not import information which is in his personal knowledge. Thus, in order to remove any kind of bias, we direct SEBI to appoint another WTM to consider the objections of the appellants," SAT said in its order.

Further, SAT observed that even though SEBI's earlier order on Shirpur Gold did not involve Goenka and Chandra as parties, nevertheless the order had influenced Bhatia in issuing his current directives in the ZEEL matter.

"We, however, find that the WTM while passing the impugned order took into consideration the interim order dated April 25, 2023 passed in the matter of Shirpur Gold Refinery in which the appellants are not parties but this order has influenced the WTM in passing the impugned order. We find that the order passed in Shirpur Gold Refinery Ltd. was passed by the same WTM who has passed the impugned order," SAT reasoned while issuing its directives to SEBI.

SAT further said that all arguments raised by Goenka and Chandra before the tribunal will remain open to be raised before SEBI, which will be considered and appropriate orders would be passed by the WTM. "The WTM will also take into consideration the proportionality of the directions given in the impugned order vis-à-vis the alleged violation."

Principle of Proportionality is core to the legal system, which states that legality of an action should be determined depending on balance between the objective and the means and methods used as well as the consequences of the action.

SAT directs SEBI to appoint another whole time member to hear ZEEL promoters

MCX, India's largest commodity exchange with a monopoly in crude, bullion, and base metal derivatives trading, has landed itself in a precarious situation due to repeated failures to switch to a new technology platform.&nbsp;More than two years have passed since MCX appointed Tata Consultancy Services (TCS) to develop a new tech platform as it wanted to discontinue the services of its two-decade-old service provider, 63Moons (erstwhile Financial Technologies).

TCS is one of the world's leading IT companies, but still, the platform it was developing for MCX has not gone live.

<h2>Where does the problem lie?</h2>

Sources and experts close to the developments in MCX say the exchange kept changing requirements frequently in the name of new functionalities, which led to the delay.

MCX has witnessed a slew of resignations by chief technology officers (CTOs) in the last few years. After Rahi Racharla (designated as chief information officer) quit in August 2018, his replacement, Paresh Paul, who was appointed in February 2019, also quit in March 2021.

This was followed by the exit of Manav Jain and Shashank Sathe, two other technology chiefs who came in after Paul.

It is unprecedented for a large exchange in the midst of a technology transition.

The uncertainty over a full-time CTO is believed to be a factor behind MCX's failure to firm up its Business Requirement Specification (BRS) document for TCS.

However, sources said that scope of work was finalised only a couple of months ago, and no further changes are anticipated from the side of MCX.

But the delays have been due to past happenings.

The buck did not stop here, and the situation went from bad to worse. MCX also does not have a full-time chief regulatory official (CRO), a crucial person who can give input on the implementation of the new platform as per SEBI norms.

Like a full-time CTO, the role of a full-time CRO is also important for MCX as SEBI has recently prescribed rigorous guidelines on technology transition.

In June, the last of 63Moons six-month extended tenure as a technology provider for MCX, the exchange was still issuing advertisements to seek candidates for CTO and CRO.

According to sources, mock trading sessions conducted by MCX in the last six months did not give enough confidence to go live with the TCS platform.

On June 30, MCX ran back to 63Moons for another temporary extension of tenure.

In the process, it has paid more than Rs 400 crore to 63Moons to keep itself afloat.

"For the count, this is the third time that MCX approached 63Moons to extend the software support service arrangement after the long-term arrangement with MCX ended on September 30, 2022, and MCX selected a new technology service provider way back in February 2021.

"We sincerely wish that this ‘last time’ really happens someday, so that we can deploy our excellent team of exchange technology engineers in a mega-promising opportunity in the new digital world," 63Moons teasingly said in its exchange filing on June 29. 
&nbsp; 
Equity research firm Morgan Stanley has given a price target of Rs 1,125 for MCX even as the share price was trading at over Rs 1600.

"The extension of its contract with 63Moons will wipe out most of its financial year 2024 profits. FY25 profit forecasts are unlikely to be affected if the implementation happens by December 2023," Morgan Stanley said in a note.

An email query was sent to MCX for its response. But no response has been received.&nbsp;

<h2>SEBI's concerns</h2>

SEBI has been expressing its concerns to MCX since August last year.&nbsp;

"Being a market infrastructure institution, it is necessary that MCX and MCXCCL ensure, on a continuous basis, that they have adequate infrastructure and systems in place for orderly execution of trades and timely clearing and settlement of trades, as well as having online surveillance capability," SEBI has told MCX.

After its warning to MCX, SEBI also tightened the scrutiny around technology set-up and put the onus of ensuring its accuracy on the Standing Committee on Technology (SCOT) of the respective exchanges.

The rules, however, were formulated especially for tech transitions like MCX.

SEBI has made SCOT of exchanges responsible for approving the methodology of system testing, functional testing, system performance under stress conditions, and application security testing.

SEBI has mandated that exchanges do extensive testing, validation, and documentation whenever new systems/applications or changes to existing systems/applications are introduced before deployment in a production/live environment.

Such documentation has to be comprehensive. Further, exchanges should have policies and procedures for the use of third-party systems/applications/software codes and ensure that these are subject to review and testing before integrating them.&nbsp;

According to experts, fulfilling such rigorous requirements and its documentation without a full-time CTO and CRO could be difficult.&nbsp;

But before it cuts the umbilical cord with 63Moons, MCX has to create the framework and allow SEBI a few weeks for inspection and testing. After the appointment of a CTO, the setting up of the framework, parallel testing of the platform, and all the risk management parameters themselves can take around six months for MCX, say experts.

But the process can start only after there is some clarity on MCX's filling of the key vacancies, given that not many would be keen to take up such a critical role at such a delicate juncture.

Hence, according to the experts, a switch to the TCS platform even after December 31, 2023, the last month of the third extended deadline of 63Moons, could be a race against time for MCX but not impossible.

<h2>Market speculation</h2>

Speculation is rife that, to salvage the situation, MCX may seek to merge with either the NSE or the BSE.

It is due to such anticipation that the share price of MCX has held firm in the face of grave adversities and even rose by around 10 per cent on Thursday despite a lower price target by the likes of Morgan Stanley, analysts say.

What is fueling speculation about a merger? Officials from Kotak group, which owns a 15 per cent stake in MCX, had a meeting with senior BSE officials a few months ago but it is not clear if the finer details of the merger were discussed.

In the past, too, news reports have suggested that the BSE was interested in a share swap deal with the NSE.

Adding fuel to the fire, the BSE recently made its derivatives trading available on the ODIN technology platform, which is the same that the majority of the brokers use to trade on MCX.

There are other similarities: the BSE uses the T7 platform to trade, which MCX has been trying to develop with the help of TCS.

News reports have suggested in the past that MCX could pursue a merger with NSE. But that would have to pass the muster of the Competition Commission of India (CCI), since both hold monopoly positions in their respective areas.

<h2>SEBI suggested SaaS&nbsp;</h2>

SEBI had told MCX to explore utilising software-as-a-service (SaaS) models with any of the existing exchanges or clearing corporations until MCX and MCX-CCL are ready to handle the transition.

Reportedly, last year, officials at MCX held meetings with NSE Clearing, wherein SaaS was discussed. But MCX fears that it would lose volumes and crucial market data to rivals, hence the idea being put on the back burner.

While options for MCX are limited, its share price is firm, indicating interesting developments are in the works.

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A slew of resignations by chief technology officers has made the situation what it is today.


How MCX is dealing with its tech transition woes

The role of yet another insolvency resolution professional (RP), Girish Juneja, has come under the scanner of the Committee of Creditors (COC) of Hindustan National Glass (HNG), one of India's oldest and leading container glass-making companies. This is after Justice NV Ramana, the former chief justice of the Supreme Court (SC), gave an opinion last month that the RP's actions may have given an undue advantage to a party AGI Greenpac, which is in the race to acquire the company. Sources close to the CoC said that members of the committee were in possession of Ramana's opinion on the RP. The RPs have been given wide powers to ensure that the buyout of insolvent companies goes through.&nbsp;

HNG’s insolvency resolution, which could potentially fetch more than Rs 2,000 crore, started in January 2022 but ran into controversy after the CoC had selected a large bidder that lacked an unconditional approval from the Competition Commission of India (CCI). On May 30, Justice Ashok Bhushan of the National Company Law Appellate Tribunal (NCLAT) stayed the deal process for HNG and directed the authorities "to adjourn the plan approval application" on the reasoning that it was "necessary to decide the correctness of the two CCI orders before the process is allowed to proceed any further".

Email queries were sent to at least 10 persons including RP Juneja and the members of CoC, which remained unanswered.

The parties bidding for HNG were required to have a prior unconditional clearance from the CCI for the acquisition, a rule that was set by the RP himself through an email sent to all the bidders. But when it came to awarding the deal, a party that was yet to receive any CCI clearance and whose application was not even pending before the CCI was selected by the RP, who was then pushing ahead with the process.

<h2>Why the spotlight on RP?</h2>

"The actions of the RP have given an undue advantage to AGI. In fact, considering there were only two bidders, INSCO and AGI, and since INSCO already had (CCI) approval under green channel under the date of submission of its final resolution plan, the decision taken by the RP was categorically only in favour of AGI being the only bidder who did not have a CCI approval," Ramana said in his opinion granted on the matter last month.&nbsp;

Interestingly, Ramana also said that AGI's resolution plan would not have been eligible for voting in the first place since on the date of submission of the plan as well as voting, AGI did not have any application pending before the CCI. "Yet, the RP has reposed utmost confidence in the resolution plan of AGI. There is merit in the arguments that actions of RP was to give special preference to one bidder and the same ought to be examined by the NCLT under regulation 36 of CIRP and prevalent precedents," Ramana said.

<h2>Faulty approval</h2>

RP has to put up the best resolution plan for the beleaguered companies to the NCLT for a final approval.

Ramana said on September 26 that the RP Juneja, contrary to his own decision, submitted the resolution plan of AGI to NCLT without there being any CCI approval. Also, prior to October 28, the day of the CoC's approval to the RP's submission, AGI's Form-I application to the CCI had already been considered 'not valid' by the commission. Later, on November 5, when AGI's plan was submitted for approval from NCLT, the company had no CCI approval for its plan since it had submitted a Form-II application only on November 3 despite Form-I being held invalid.

Ahead of the filing of the resolution plan with NCLT, RP Juneja on August 28 watered down the requirements under the RFRP (request for resolution plan) to suit AGI and said that CCI approval for the takeover could be availed after approval of plans by the CoC but before the application to the NCLT. This was done without any approval of the CoC and any discussions thereupon, Ramana noted.

<h2>Mystery of conditional CCI approval</h2>

The CCI order dated March 15, 2023 reveals that CCI is of the prima facie opinion that the combination of HNG and AGI is likely to result in an 'appreciable adverse effect on competition' in the overall container glass packaging in general and in the sub-segments of alco-beverage and F&amp;B in particular.

However, CCI proposed modifications by AGI that involved divestment of the Rishikesh plant of HNG, which in the submission of AGI would reduce the impact on the competition. Thus, the CCI granted approval to AGI only on the basis of this modification.&nbsp;

"Modifications were only submitted (by AGI) on March 10 and 14 and CCI order was passed on March 15. Thus it is clear that the CCI order is completely based on the submission of AGI and it has not had a chance to verify and examine the submissions. The submission of AGI, if proved to be false, would render the basis of the CCI order as wrong and liable to be set aside," Ramana noted.

Further, since AGI's plan was not disclosed to the RP, CoC on the submission of the resolution plan and its voting and on the date of filing of application by the RP to the NCLT for final approval, it is a clear case of non-disclosure and concealment by AGI. It would be tantamount to misrepresentation, Ramana noted. "A resolution plan discussed and approved on the basis of such non-disclosure should be set aside and sent back to the CoC as being violative of various sections," Ramana said.

<h2>Is conditional approval allowed?</h2>

"There cannot be a conditional approval of a resolution plan and the plan cannot be approved subject to receiving permissions from CCI," Ramana said.&nbsp;

The former CJI placed the reliance on an SC judgement in Ebix Singapore v/s CoC of Educomp Ltd where it had been held that a resolution plan conditional to future events/negotiations cannot be approved in the present form. The acquisition of HNG would lead to direct horizontal overlaps and also vertical overlaps and would attract the rigours of Section 5 of the Competition Act, he said. Also, the modifications would involve the closure of plants and the HNG workers union too have submitted various complaints to the chief of the Insolvency and Bankruptcy Board of India, the Comptroller and Auditor General, the finance ministry, SEBI and other regulatory and investigative agencies raising concerns over the role of the RP and controversial process being followed.

The role of yet another insolvency resolution professional (RP), Girish Juneja, has come under the scanner of the Committee of Creditors (COC) of Hindustan National Glass (HNG).


Hindustan National Glass insolvency: Former CJI NV Ramana puts Resolution Professional in the dock

The severe governance lapse at PTC India Financial Services (PFS), an NBFC and subsidiary of Power Trading Corporation, could be just another potboiler. From hiding fraud in loan accounts to keeping the board in dark on crucial forensic audit reports and not filling up crucial vacancies, SEBI's show cause notice (SCN) to Rajib Mishra and Pawan Singh, two top executives of PFS reveals a complete breakdown of the company's management. Singh was the MD and CEO who is currently on a forced leave while Mishra the former chairman is now the CMD of the company. Both are accused by SEBI of grave mis-management.

Six independent directors (IDs) resigned from PFS board in 2022 under Mishra and Singh. Issues raised by the audit chairman were not recorded accurately in the minutes of the meeting and both failed to objectively look into the concerns raised by resigning IDs, SEBI SCN says.

<h2> 
SEBI's charges</h2>

Intriguingly, Singh did not allow one Ratnesh Kumar to join PFS as a whole time director even though his appointment was cleared by the board and various committees. After waiting for months, Kumar re-joined NTPC from where he had come. Singh had opposed Kumar's appointment on the grounds that he lacked experience for working in an NBFC.

Singh and Mishra allegedly delayed for two years the disclosure of a crucial forensic audit report that revealed fraud in the loan account of Nagapatnam Power and Infratech Pvt. Ltd. (NPL) and also made unilateral changes in conditions of loan granted to Patel Darah-Jhalawar Highway Pvt. Ltd., without board approvals. SEBI says both had no concern for issues highlighted by former PFS chairman Deepak Amitabh and ignored any communication by the IDs and shared no information about it with the board.

Forensic audit had indicated diversion and mis-utilisation of funds disbursed under the bridge loan to NPL, which raised clear suspicion of fraudulent activities in the account. Audit report had noted that PFS did not disclose this to RBI. Eventhough, suh non-disclosure or non-compliance may not have involved deliberate or malafide intent but was due to negligence, weak systems and lack of controls - a total management failure.

NPL had turned into a non performing asset in 2017 and the first forensic audit report came in 2018 but the PFS board was made aware about it only in December 2020. Another audit report of 2022 says the main security of the loan (the project land mortgaged to PFS by NPL) was legally not enforceable as NOC was not obtained from the state government, a key requirement for the loan deed. The loan monitoring team headed by Singh never tracked the utilization of funds to NPL for 18 months post disbursement of money.

SEBI says PFS IDs were treated as impediments and their authority was undermined by Mishra and Singh.

&nbsp;

<h2>Unbecoming of a chairman</h2>

"Mishra has consistently thwarted the efforts of IDs to function in an independent and responsible manner. He failed to discharge his responsibilities as a chairman and frequently speaks a lot about the way the chairman has been conducting the board meetings. It also poorly reflects in effectiveness on the part of chairman to provide conducive environment to the IDs, so that they work unfettered as to bring about balance in functioning of the board or to act as a mitigating factor towards any conflict of interest on the functioning of the board," SEBI has said about Mishra.

In SEBI's view, Mishra did not work in the interest of the shareholders by not questioning the management or implementing the board decision in spite of the same being brought to his notice. Mishra brushed aside and failed to act on the suggestions/concerns raised by the IDs or even to act as a reconciliatory element in the event of conflict among the board members.

&nbsp;

<h2>Observations on Singh</h2>

SEBI quotes forensic audit, which says Singh as Director Finance had been unilaterally changing the terms of loan disbursement and also disbursing loans to entities who had delayed or defaulted on their payments. Singh did not inform the board and RBI about a suspected fraud by NSL loan account.&nbsp;

"Singh refrained from acting judiciously and objectively and flouted the board decisions multiple times. Blatantly ignored and neglected good governance practices, resorted to wrong practices to have his own way and acted contrary to what is desired from an MD and CEO. Singh, as Director (Finance) failed to act in a prudent manner as NSL defaulted on the very first repayment and turned an NPA in 2017," the SCN says.&nbsp;

Multiple email requests for appointment of a woman ID, constitution of nomination and remuneration committee (NRC), convening the NRC meetings and ignoring the IDs seeking legal were blatantly ignored. No action was taken by both and eventually all Ds resigned effective January 19, 2022.

SEBI will soon initiate adjudication proceedings against both. Email sent to PFS on the SEBI SCN and to SEBI remained unanswered.

SEBI says PFS IDs were treated as impediments and their authority was undermined by Mishra and Singh.

&nbsp;


PFS mis-management: SEBI show cause highlights the unfolding drama in the company

Equity market brokers are against a SEBI circular that directs them to submit only client fixed deposit receipts (FDRs) with a maturity period below 365 days for margin purpose to clearing corporations (CCs). Brokers say that such a requirement will lead to huge losses for their clients, since most have submitted FDs with maturities beyond 365 days, and any premature withdrawal may lead to huge penalties. On July 26, brokers’ association ANMI wrote a letter to SEBI explaining the pain, seeking grandfathering of longer duration FDRs submitted up to July.

In the normal course, brokers submit thousands of crores worth of bank FDs to clearing corporations of stock exchanges to avail trading limits. For client-related trading limits, brokers submit FDRs gathered from clients. For proprietary trades, brokers submit their own FDRs. But a SEBI circular of June 6 says that FDRs not fulfilling SEBI conditions will not be valid post-July 1.

SEBI circular has stipulated certain conditions for "upstreaming of client circulars" by stock brokers to the clearing corporations. Upstreaming is nothing but brokers collecting the FDs from clients and submitting them to clearing corporations.&nbsp;

The SEBI circular stipulated that every FDR should be lien marked to the clearing corporations and its tenure should not be more than one year. Also, such FDs should be pre-terminable on demand and the principal amount of the FDR will remain protected throughout the tenure, even after accounting for all possible pre-termination costs. SEBI also said that brokers cannot avail any funded or non-funded banking facilities based on FDRs created out of client funds.

Brokers have urged SEBI that the maturity of their FDR should be grandfathered, meaning FDRs already submitted up to July 2023 be allowed.

"We urge the maturity period of the existing FDs to be grandfathered and the new FDs to be created post-July 1, 2023 be allowed beyond 365 days as not only there is a gap in the returns between an FD of 365 days and 365 + 1 day but also of higher tenure of maturities. Our members will be at a loss in earning FD returns due to the cap of 365 days. If there are apprehensions on FD maturity of 365 + days, please let us know the concerns which we can address to the extent possible or suggest alternative measures," read ANMI’s letter to SEBI, accessed by Zee Business.

Further, the ANMI letter states that restricting the receipt of funds from clients, particularly in the case of clients having MTM (market to market), will cause unnecessary hardship to brokers and clients. "If the receipt of clients funds are restricted then the client may not be able to trade in the morning of the next trading session and the brokers may also have problems in meeting the T+0 for FNO and T+1 settlement for the cash market," the letter read.

<h2>Confusion on FDRs for proprietary trading limits&nbsp;</h2>

Also, ANMI has initiated discussions with a clearing corporation that is insisting on implementing new FDRs norms for proprietary trades as well even though SEBI circular has no mention about it, a member told Zee Business. 
&nbsp; 
"One of the CCs was creating confusion on submission of FDRs for proprietary traders. Trades done by brokers in their own books and not for any of the clients are proprietary trades. Brokers say while an exchange has informed them that upstreaming of clients’ funds is not applicable to the extent of proprietary funds, a CC issued a clarification last week saying that all existing FDRs lien marked to it will have residual maturity of 1year and FDRs not fulfilling the requirements shall need to be released by July 01, 2023," a broker said.

Email sent to SEBI on the ANMI letter remained unanswered.

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SEBI's recent dictate says FDs above one-year maturity will not be accepted from July.&nbsp;


Brokers seek grandfathering of client FDs already submitted for margin purpose

Market regulator SEBI (Securities and Exchange Board of India) has raided six entities connected to a large market operator for front-running the trades of foreign portfolio investors (FPIs). Among those raided by SEBI, five brokers are from Kolkata and one was from Mumbai, sources told Zee Business. The raids were conducted last week. The market operator who SEBI believes could be behind the entities has faced severe action from the regulator in the past and is known to use benami fronts to trade in the market, the sources said.

It is learned that SEBI had information and prima facie evidence that these brokers and entities close to them were front-running the trade of large foreign portfolio investors (FPIs), the sources said.

Front running is nothing but trading on advanced non-public price-sensitive information. Advanced knowledge of big buy-sell orders of institutions is always privileged information since the sheer quantity of trades of such institutions can move prices. Front running is the practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge pending transactions that will influence the price of the underlying security.

The entities that SEBI raided were known to trade on advanced knowledge of the FPI trades, the sources said.

An email query was sent to SEBI &amp; their response is awaited. Zee Business will incorporate the response once it is received.

The market operator who SEBI believes could be behind the entities has faced severe action from the regulator in the past and is known to use benami fronts to trade in the market, the sources said.


Front-running of FPI trades - SEBI raids brokers in Kolkata, Mumbai

Can Axis Bank and State Bank of India's haste to sell a power plant in Maharashtra to a little-known asset reconstruction company (ARC) run into regulatory hurdles? A bid by Chartered Finance Management (CFM) ARC for Vidarbha Industries Power Ltd (VIPL), which has a 600 mv coal-based power plant near Nagpur, is under the consideration of Axis Bank and SBI, the lenders to the power company.&nbsp;

However, sources say that both the banks may have ignored the red flags against CFM ARC, which was served with a show cause notice (SCN) by the Reserve Bank of India (RBI) for questionable business conduct and was on the verge of losing its licence. Also, the Income Tax Department had conducted searches on the ARC for its links to shell companies, the sources said.&nbsp;

Axis Bank is the lead in the consortium that had lent money to VIPL and SBI is the largest lender to the power company. Both these banks play a vital role in approving the bids for the sale of VIPL and after evaluating the offers for the past few months, they are seriously considering the bid by CFM ARC, the sources said. The lender will be meeting today to take the deal ahead, said an expert close to the developments.

It is not clear if CFM has disclosed to the lenders that it was served an SCN by the RBI last year and it had come on the verge of losing its license. CFM was among the four ARCs raided by the Income Tax Department in December 2021. The raids had revealed a nexus of the ARCs with the borrower group and a maze of shell or dummy companies used in acquiring non-performing assets (NPAs). Following this, the RBI had issued an SCN to the ARC, the sources said.

An expert who spoke to Zee Business says that CFM ARC on its own lacks the financial muscle to close the deal for acquiring the power plant. CFM ARC's balance sheet reveals a mediocre status of its financial strength compared to the bid that it has submitted to the banks. Sources say CFM ARC has submitted a Rs 1,220-crore bid for acquiring VIPL and promised to pay the entire sum in just 90 days of the lenders' approval of the proposal.

But a study of CFM ARC's balance sheet shows it is primarily funded through debt to the tune of Rs 800 crore and equity of only Rs 200 crore (80 per cent debt and only 20 per cent equity). In that, the balance sheet also carries certain short-term debt indicating instability of long-term funds with the ARC. Add to this, the poor profitability and operating cash flows for the financial year 2022. CFM ACR's operational EBITDA, which stood at a measly Rs 52 crore and PAT at Rs 30 crore for FY2022, clearly indicates that it may not be in a position to close such a large deal without major funding from a third party. The onus of the basic due diligence lies on the two banks, experts said.

VIPL, a subsidiary of Reliance Power, turned into an NPA in 2019 after it was constrained due to its disputes involving power purchase agreements and marred by the regulatory delays in recovery of its fuel costs. Apart from CFM ARC, another company National ARC, a government entity, too had submitted its bid for VIPL where it offered 15 per cent upfront of the total bid of Rs 1,150 crore and the balance over the next five years. VIPL itself has made a one-time settlement offer to the banks wherein it was willing to pay a total of Rs 1,260 crore with 10 per cent upfront and the balance in 75 days after lenders approve the deal. VIPL has also proposed a 'Swiss Challenge' method of bidding for better valuation, the sources said.

Emails sent to Axis Bank, SBI and CFM remained unanswered till the time of publishing the story. Zee Business would be adding their replies to the story as and when received.

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CFM ARC was served with a show cause notice (SCN) by the Reserve Bank of India (RBI) for questionable business conduct and was on the verge of losing its licence.&nbsp;


Hasty deal? Axis Bank, SBI meet today to consider bid for Maharashtra power company by a little-known ARC, say sources

Hanif Shekh, a little known resident of Gujarat, is among the most wanted market manipulators on the list of the Securities and Exchange Board of India (SEBI). Under the regulatory scanner for one of the largest 'pump-and-dump' stock market operations in the last four years, Shekh is absconding from India and currently believed to be ensconced in Dubai.&nbsp;

SEBI has been tracking Shekh since 2019 but he has evaded all the summons and notices of the regulator, and is not traceable in the country. However, his social media account reveals that Shekh has been enjoying high life in Dubai, sources close to the SEBI probe told Zee Business.

Investigators believe that Shekh's market manipulation is likely to have generated illegal wealth to the tune of around Rs 1,000 crore to Rs 1,500 crore, and he is alleged to be the kingpin behind hundreds of entities that were involved in rigging share prices of 50-70 company stocks. According to the sources, these are estimates of the gains based on SEBI's ongoing probe, past orders and the pending adjudication proceedings against Shekh and hundreds of entities connected to him. Investigators also believe that Shekh has managed to transfer the bulk of his wealth to Dubai through hawala channels (money mules). SEBI's investigations into Shekh's operations are still ongoing and interim orders have been passed in a few matters where the regulator was able to reach some conclusion, sources said. 
&nbsp;&nbsp; 
Shekh's racket involved sending bulk SMSes and circulation of stock tips through websites to attract gullible investors and dump his holdings through multiple front entities later when the scrips caught the fancy of the investors. SEBI's investigations have found that Shekh created fake SMS IDs closely resembling prominent equity broking companies like Zerodha and ICICI Securities and used them to send bulk phone messages with 'buy' recommendations to entice small investors while entities connected to him dumped shares in the market.

In the view of SEBI whole-time member SK Mohanty, "Entire operation was run by the kingpin Hanif Shekh with best of care to deceitfully hoodwink and delude the normal eyes. As a consequence of which Mr. Hanif Shekh along with his connected entities and promoters of some companies generated wrongful gains."

In 2019, Zee Business had first highlighted how few small company shares were being manipulated by sending bulk SMSes to retail investors.

Shenanigans of Shekh

His racket first came to light a few years ago when SEBI started receiving several investor complaints against high operator activity in some of the small company stocks on its online grievance platform SCOREs. SEBI's initial probe suggested that the operation involved stock tips through bulk SMSes. After examining the prima facie evidence, SEBI started its detailed investigations.&nbsp;

SEBI's recent probe order against Shekh shows there were 226 entities under his network. The regulator has also recovered multiple bank accounts and fund transfers in Ahmedabad, Mumbai and Kolkata. This apart, SEBI has tumbled up on SMS compilations, forex bills, trading logs, Gmail links, call data record (CDR) and also his links to few promoters of the small companies.

Kasambhai Shekh, Hasina Kasambhai Shekh, Robert Resources, Econo Trade India, Econo Broking (Erstwhile Bansal Finstock) and Sai Metaltech LLP are a few key entities directly linked to Shekh and his family, as per SEBI investigations.

Experts say Shekh's market operation could easily be among the few large illegal schemes to have been unearthed by SEBI since it passed orders in the infamous Global Depository Receipt (GDR) scam.

"Shekh is another of the big fraudsters like the infamous Arun Pancharia of the GDR fraud worth thousands of crore where share price was inflated first and then operator holding was dumped in the market, all in the name of issuing fancy instruments. Although SEBI passed orders in the GDR scam after months and years of painstaking investigations, major recovery from the scamsters is lacking," a source close to the regulator's office said.

Flamboyant lifestyle

&nbsp;

[[{"fid":"248554","view_mode":"default","type":"media","link_text":null,"attributes":{"height":1021,"width":1052,"class":"media-element file-default"}}]]

Sources say that Sheikh is currently believed to be in Dubai. His instagram handle "ihanifshekh" gives a peek into his extravagant, high life. To attract eyeballs, Shekh has splashed his picture with Urvashi Rautela, Miss Diva Universe 2015, and actress and model Sana Shaikh on his social media handles that display his profile as the head of a broking firm.

On the Instagram handle, Shekh calls himself an entrepreneur, private equity and start-up investor, green-ship recycler at Alang Port and Managing Director of Econo Broking. He has shared the web address of his brokerage firm "econobroking.com" that is under SEBI scanner.

But investigators say Shekh and his family are from Gujarat's Bhavnagar district where they stayed at Flat No 102, Royal Rehamani Complex, Sir Pattni Road, Bhavnagar-364002. Econo Broking, registered at 9/12 Lal Bazar Street, 3rd Floor, Block -B, Room No.3103, Kolkata – 700001, which was acquired by Shekh and his family in 2018 through an open offer.

How the fraud operated

Shekh's dealings are among the few instances where SEBI has managed to zero in on the 'ultimate beneficiary' of the stock tip scam through mobile phones and Internet. Otherwise, the difficulties that investigators face in probing the source of mobile phone messages and the internet are commonly known.

An order passed by SEBI official Mohanty on June 19 has estimated the illegal gains made by Shekh to the tune of Rs 144 crore by his operations in just five stocks that they looked at in the particular order. Besides, there are multiple investigations, recovery notices, adjudication and summons pending against Shekh and his connected entities, which suggests to the investigators that his illegal gains could be way higher.

SEBI's June 19 order Shekh and entities connected to him were dabbling in stocks including Mauria Udyog, 7NR Retail, GBL Industries and Darjeeling Ropeway Co. He has also been named in manipulating scrips including Leading Leasing Finance and Investment, Agrophos India Pvt Ltd, VB Industries Pvt Ltd among few others.

Although Shekh may have conveniently evaded SEBI summons, his lawyers have filed appeals in some matters at the Securities and Appellate Tribunal. In November 2022, SEBI had fined Shekh Rs 7 lakh for evading their summons multiple times. Sources say the recovery of some penalties levied against Shekh is still pending.

Play of Bulk SMSes

SEBI investigations show that Shekh used three types of entities for his operations.

First was instrumental in artificially influencing price and volume in stocks a few days prior to sending of the SMSes with 'buy' recommendations. SEBI has labeled such entities as price/volume (PV) influencers and found that all were connected to each other.

Another type was the “off loaders". These entities would make substantial gains by dumping the shares previously acquired by them. After the initial buying into the shares prior to the sending of the bulk SMS tips, these entities would turn massive sellers.

Last was the ‘kingpin’ - Shekh

[[{"fid":"248555","view_mode":"default","type":"media","link_text":null,"attributes":{"height":1319,"width":1080,"class":"media-element file-default"}}]]

"He was the source of the bulk SMSes who had not only orchestrated the entire&nbsp; scheme but shared direct links to the entities from which the SMEs with buy recommendations originated. He used certain websites too for luring small investors," said the SEBI order. Profits were transferred to the ultimate beneficiary Shekh through several conduits.

The trail

SEBI's lead started with the SCOREs complaints and soon the regulator discovered that two government-owned telecom operators BSNL and MTNL were being used to send bulk SMSes with 'buy' recommendations.

Shekh's SMS IDs mimicked the names of top stock brokers like Zerodha and ICICI Securities. SMS senders were registered as BT-ZROHDA,&nbsp; BT-MGAINS,&nbsp; BH-MGAINS and&nbsp;BT-ICISEC. Another government telecom company MTNL was the service provider for Shekh-linked IDs MB-STOCK and&nbsp; MD-MULTIB.

SMS aggregators and resellers Awadh Info Pvt Ltd, Spark TG Pvt Ltd and Newrise Technosys Pvt Ltd were the resellers who dealt with the clients on&nbsp;behalf of the telecom company for sending SMSes. HFCL Infotel was a service provider for QP-BGAINS and its reseller was One Popular Softtech, SEBI investigations show.

To reach the source of these SMSes, SEBI focused on mobile numbers provided to the resellers. When the certificate users of these mobile numbers were probed, the links led SEBI to the one point -- Shekh. Suspicion that Shekh was the kingpin of the entire racket was confirmed by the CDR of mobile numbers 9537570268 and details of exchange of calls between Shekh and Awadh Info having mobile numbers (9838585569 and 7311111641) and SparkTG (97179397366).

Shekh and connected entities were also financing the owners and managers of two websites: "www.midcapgains.in" and "www.mbstocks.in". The payments for development and maintenance of these were all linked to Shekh controlled entities. and a HDFC Bank account number 50200027909681, as per SEBI's order.

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Shekh enjoying high life in Dubai after evading multiple SEBI summons. Adjudication pending in many matters, he used hundreds of front entities for the operation. Zee Business had highlighted stock rigging through sending of bulk SMSes.


Mastermind of estimated Rs 1,500 crore SMS stock tip scam Hanif Shekh likely absconding from India

After scrapping an earlier controversial decision, the Director General of Foreign Trade (DGFT) has reallocated the special gold import quota of 140 tonnes, roughly worth more than $10 billion, to 341 applicants under the India-UAE comprehensive economic partnership agreement. The majority of the approved applicants have been allocated an import quota of 465 kg of gold, which will attract one per cent lesser import duty than usual. The import quota is for the current financial year.

In March, the DGFT had allocated the same quote to just 78 applications, which was termed as a ‘pre-arranged’ deal by the large bullion players. Zee Business has seen the minutes of the latest DGFT meeting on May 18 chaired by Santosh Kumar Sarangi, Additional DG, where the quota was reallocated and also the bullion players confirmed about the revision.

The special gold import quota is part of India's bilateral deal with the UAE, which will allow approved bullion traders to import 140 tonnes of gold with one per cent lesser import duty than the usual under the scheme known as Tariff Rate Quota (TRQ), a mechanism for import of a set quantity of specific products. The India-UAE free trade pact came into effect on May 1, 2022 and allowed for the concessional tariffs on gold.

In April, the Indian Bullion and Jewellers Association (IBJA) had written to DGFT highlighting the lack of transparency in the gold import quota deal. The letter with Zee Business shows that IBJA had objected to the allocation due to non-transparent means of DGFT. After news reports on April 26, the DGFT called for a press conference and said it will initiate fresh quotas.

Estimated loss to government on earlier faulty allocations 
&nbsp; 
IBJA had alleged that the benefit of the government's discount on duty was being passed on to 78 applicants, who got quotas on the back of incorrect allotment of TRQ.&nbsp;

Tariff quotas were provided to a wide range of products, so far were mainly restricted to the agriculture sector. But this year, the scheme was also extended for gold imports. The DGFT had decided the players to be considered for the quota in March since the government had favoured gold imports from the UAE under the free trade agreement signed by charging an import duty of one percentage point less than the usual 12.5 per cent levied on imports from other destinations.

DGFT's Faux Pas

IBJA's letter, dated April 21, narrated a baffling incident to indicate the ‘pre-arranged’ quota deal. The letter, addressed to Sarangi said that the quota for import of 140 tonnes of gold was allotted to the 78 applicants in a meeting of the DGFT held on March 23 based on reference of&nbsp;a government public notice dated April 17.

“We fail to understand as to how in the meeting held on 23rd March was given based on reference to public notice no. 06/2023 dated 17/04/2023 issued by DGFT in sync with Ministry of finance (Department of Revenue) Notification No. 20/2023- Custom dated 31/03/2023,” said IBJA’s letter to DGFT.

“As per the minutes of the meeting dated March 23 of DGFT, the TRQ quota for import of 140 tonnes of gold at one per cent lesser duty was allotted to 78 applicants. We request you cancel the so far allotted quota and give fresh opportunity to all eligible applicants. Approving such a proposal in the meeting in March based on future DGFT public notice issued in April itself is void,” the letter added. As evidence, the IBJA has attached the minutes of the meeting of DGFT held in March, where the quota was allotted based on the April circular.

Last year in July, the government had hiked the basic customs duty on gold to 12.5 per cent. Along with the agriculture infrastructure development cess of 2.5 per cent, the effective gold customs duty works out to 15 per cent. Gold imports in India were down 27 per cent last year to 673 tonnes, against 925 tonnes in 2021, due to high import duty even while the smuggling of gold is on the steady rise.

Allocations in March were provisional, says DGFT

In a response to Zee Business, the DGFT said, "The allocations made in March were provisional and in view of the change in policy decision to allow non-manufacturer jewellers to participate in TRQ process, fresh applications were invited. Depending on the number of applicants and quantity applied for, a rational allocation has been made in favour of eligible applicants."

Further, the DGFT said that the allocation of quota is often based on either processing capacity (wherever actual user condition exists) or quantity applied, or a combination of both. "There is no question of non-transparency as the trade is fully aware of each others’ capacity. In the instant case, there was a change in policy decision to allow even non-manufacturer jewellers to apply following which the application process was initiated afresh and quota has been allocated. If there is any iota of doubt regarding this allocation, then specific cases may be furnished," DGFT said responding to Zee Business.

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Quota allows one per cent less duty than usual on imports. DGFT's March allotments were termed as 'fixed-match' by bullion traders.


140 tonnes of gold imports: 341 get fresh quota; DGFT scraps controversial allotments to 78 

The Reserve Bank of India (RBI) has rejected the appointment of Akash Suri as the CEO of Yes Bank-JC Flowers Asset Reconstruction Company (ARC), sources told Zee Business. RBI approval is necessary for getting appointed as a key managerial person in ARCs and non-banking finance companies. Suri will step down from his post on June 30.&nbsp;

Suri, before being appointed as CEO of the JC Flowers ARC, was the group president and national head of Yes Bank's asset reconstruction business.&nbsp;

Suri did not respond to phone calls and WhatsApp messages seeking his comments on the story. Yes Bank did not reply to an email query seeking response. The RBI did not respond to email queries.

Yes Bank had entered into a partnership with New York-based JC Flowers to form an ARC for the sale of identified stressed loans of the bank in July 2022. Following the deal, Yes Bank had transferred Rs 48,000 crore worth of stressed loans to the ARC. The transfer of bad loans was done under the 15:85 structure, which means that the bank gets 15 per cent of loan value upfront from the ARC, while the remaining 85 per cent is in the form of securities.

JC Flowers had promised to pay the bank Rs 11,183 crore for the entire pool of stressed loans, resulting in 23 per cent recovery to the bank.

Before being appointed as CEO of the JC Flowers ARC, Akash Suri was the group president and national head of Yes Bank's asset reconstruction business.&nbsp;


RBI rejects appointment of Akash Suri as CEO of Yes Bank-JC Flowers ARC: Sources

Two of the mid-sized companies, DCM Shriram&nbsp;and Chalet Hotels, have witnessed some backlash from institutional investors on their proposed shareholder resolutions. However, both the companies have managed to have all their proposed resolutions passed mainly on the back of non-institutional shareholding, as per data released by proxy advisory firm IiAS. This is because institutional shareholders form a small portion of the overall shareholding in both the companies. DCM passed all its resolutions with nearly 70 per cent votes and Chalet managed to pass its resolutions with 95 per cent votes.&nbsp;

Data from IiAS shows that over 90 per cent of institutional shareholders or large funds have voted against three proposals of DCM Shriram&nbsp;with regard to the extension of a stock option scheme, amendment to it and secondary acquisition of shares under the employee stock options scheme. Similarly, 68 per cent of institutional investors have voted against the appointment of two independent directors of Chalet Hotels. The e-voting on the proposals by Chalet Hotels happened between May 7 and June 5. DCM had sought e-voting on its proposals between May 6 and June 4. The results were announced by both the companies on the next day of the close of their e-voting.&nbsp; Also, the final voting percentage is calculated based on those who participated.

LIC is a major institutional shareholder in DCM Shriram while SBI Consumption Opportunities Fund, Sundaram MF, Nippon Life, HDFC Small Cap and ICICI Prudential are shareholders in Chalet Hotels.&nbsp;

SEBI had come up with the concept of shareholder voting on proposed company resolutions to ensure that minority shareholders are not short-changed. Among all the non-promoter categories of shareholders, institutional shareholders in majority of the companies are most qualified since these shareholders comprise the likes of mutual funds, insurance companies and pension funds, and hence, they have a better ability to understand the resolutions. According to experts, when all proposed resolutions get passed despite huge opposition from institutional investors, it shows that some well-intentioned SEBI concepts can be made redundant in spirit if not in letter.

<h2>What opposing shareholders did not like in the DCM scheme</h2>

A report by IiAS says that they had advised shareholders to vote against DCM Shriram's proposed amendments to the stock options scheme since the company had not disclosed the amendments that it intended to make to align it with current regulations.

"We believe the company must make granular disclosures on the proposed amendments to enable the shareholders to exercise their vote diligently."

On the second resolution, DCM had proposed to extend the DCM Shriram Employee Stock Purchase (ESPS) Scheme to the employees/whole-time directors of the subsidiaries of the company at a 99.8 per cent discount on the prevailing market price.

"We do not favour ESPS schemes, where shares are granted at a significant discount of more than 20 per cent to market price. ESPS are ‘pay at risk’ shares that employees accept at the time of grant, which is protected if the shares are issued at significant discount to the market price. We believe there is no alignment between the interests of investors and those of employees. Since we do not support the initial scheme itself, we also do not support the extension of this scheme to the employees/whole-time directors of subsidiaries of the company," IiAS said in its recommendations.

Also, DCM Shriram&nbsp;had proposed to authorise a trust for secondary acquisition under DCM Shriram ESPS Scheme and approve the provision of money – up to 5 per cent of the aggregate of paid-up share capital and free reserves – to the trust for purchase of shares. "Since, we do not support the initial scheme itself, we also do not support authorizing the trust to shares from the secondary market and the provision of loan to purchase the said shares from the secondary market," IiAS said.

<h2>Why few shareholders voted against the proposals of Chalet Hotels</h2>

The company had proposed the re-appointment of independent directors Hetal Gandhi, Joseph Conrad D'souza and Arthur William DeHaast. Institutional shareholders polled 68 per cent votes to reject the re-appointment of Gandhi and D'souza. IiAs has termed the proposals of re-appointments against the "spirit of regulations."

"We consider Gandhi and D'souza as non-independent due to their long association of 22 years and 21 years with the company (respectively). Further, Gandhi is on the board of five listed companies, including Chalet. We believe that, as Managing Director of Tano India Advisors Private Limited, his responsibilities are equivalent to a whole-time directorship. Therefore, his high number of directorships in listed companies is not in keeping with the spirit of the regulation. If the company believes that the reappointment of D'souza will benefit the board, it must reappoint him as Non-Executive Non-Independent Director."

IiAs had recommended a vote against the reappointment of&nbsp; William DeHaast on the reasoning of 'conflict of interest.'

"We do not consider him to be independent. Further, he is also on the board of InterContinental Hotels Group PLC, UK which is involved in a business similar to Chalet Hotels Limited. InterContinental Hotels group operates hotels in India under brand names Intercontinental Hotels and Holiday Inn Hotels; which could represent a conflict of interest," IiAS had said in its report.

Both companies did not respond to an email query.&nbsp;

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LIC is a major institutional shareholder in DCM Shriram while SBI Consumption Opportunities Fund, Sundaram MF, Nippon Life, HDFC Small Cap and ICICI Prudential are shareholders in Chalet Hotels.&nbsp;


DCM Shriram, Chalet Hotels pass key resolutions amidst institutional shareholder backlash

More than 50 applicants have joined the race to get appointed as whole time members (WTMs) of India's market regulator, SEBI. A joint secretary-level official from the finance ministry, a few former income tax officers, a retired Maharashtra cadre IPS officer, a former executive director (ED) of SEBI, and five serving SEBI EDs have thrown their hats in the ring for the two WTM posts up for grabs, sources in the know told Zee Business.

The term of the SEBI's current WTM, SK Mohanty, ends this month, while the other WTM, Ananta Barua, will vacate his post in July.&nbsp;

"The call for the interview has not been made yet, but it will be conducted in July and August," one of the applicants said.

Two Indian Revenue Service officers, one of whom is from the southern state and had earlier served as a SEBI, ED, and another, a management graduate from Lucknow, are the favourites and leading the race," the sources said.

"Among SEBI EDs, Anand Baiwar, SV Murlidhar Rao, VS Sundaresan, Pramod Rao, and Amarjeet Singh are in the race to the WTM posts, the sources said.

Among the two retiring WTMs, Mohanty is eligible for another extension since he is below the age of 65 years, the retirement age of senior SEBI officials.

A former income tax official, Mohanty joined SEBI in September 2015 from the erstwhile commodity market regulator, the Forward Markets Commission (FMC).

In FMC, he oversaw the probe into the NSEL scam under the tutelage of the then commodity market regulator, Ramesh Abhishek.

In SEBI, he was first made an ED and then became the WTM in 2018.

For a long time, Mohanty oversaw market regulations and the commodity derivatives department before the portfolio was handed over to another WTM.

According to sources, if Mohanty gets another extension, he would be the longest serving WTM, who has completed his five years.

SEBI pays a salary of Rs 4 lakh per month to its WTMs, which is equivalent to the pay scale of an Additional Secretary-rank officer in the Central government.

There are currently four WTMs in SEBI who have quasi-judicial powers to not only be part of the law-making process and executive decisions but also punish wrongdoers and issue stringent orders.

Financial Sector Regulatory Appointment Search Committee (FSRASC), a six-member team headed by the cabinet secretary, will interview the shortlisted candidates and send their names to the appointments committee of the cabinet headed by the Prime Minister (PM) for final approval.

Cabinet Secretary Rajiv Gauba and Principal Secretary to the PM, Pramod Kumar Mishra, are the key members of FSRASC. SEBI chief Madhabi Puri Buch can also make her recommendations to the government. As per the sources, the SEBI chief may seek the appointment of one internal candidate for the sake of continuity.

A joint secretary-level official from the finance ministry, a few former income tax officers, a retired Maharashtra cadre IPS officer, a former executive director (ED) of SEBI, and five serving SEBI EDs have thrown their hats in the ring for the two WTM posts up for grabs.


Race for whole time SEBI members intensifies with over 50 applicants for two vacancies

Much to the perversion of its wide ranging powers, SEBI has often been exposed by the courts for the absence of checks and balances, mainly in passing ex-parte orders, where its whole-time members (WTM) issue directives sans any formal hearings. To end such abuse of power, a six-member expert committee appointed by the Supreme Court (SC) this year has suggested implementing the doctrine of "Separation of Powers" within SEBI.

It is a doctrine for dividing the powers of any regulator in different branches, mainly executive and judicial, to guard against the abuse of authority. The executive branch can bring lawbreakers to trial while the judicial branch can issue the directives for punishments, making the regulator more democratic since both these branches can function under different heads.

Just how powerful is SEBI?

In its current form, SEBI officials enjoy a unique power play as they are both 'the police and the judge.' They have been vested with the entire gamut of powers akin to a 'State' — i.e. legislative, executive and judicial — all rolled into one organisation. The scale and scope of the regulator's power can be gauged just by plain reading of Section 11(1) of the SEBI Act that allows it to "regulate the securities market, by such measures as it thinks fit."

An illustrative list of SEBI's reach shows it has the power to not only make subordinate legislation but investigate violations of such legislations with statutory powers at its command; and also launch quasi-judicial adjudications in the violations that it has alleged against the parties — all on its own.&nbsp; 
&nbsp; 
Further reading of the SEBI Act will show that its authority does not only cover registered market intermediaries but even market participants who do not need a certificate of registration from SEBI and are associated with the markets in any way possible.

Due to such a set-up, listed companies and their executives often dance to the tune of high ranking SEBI officials as they can investigate, show-cause and even adjudicate them without having to prior comfort any judge of the accuracy of their action. By the time the company or its officials challenge SEBI's directives, their bank accounts are already frozen, they are barred from the markets and stripped of their hard earned reputation. This is a dangerous trend, since many of SEBI's orders are later overturned or stayed by the courts. Moreover, SEBI officials also call the shots in appointments at key market institutions like commodity and stock exchanges — the step-down regulators that can issue a whip to listed companies and brokers anytime.

Why does the SC committee want division of SEBI's power?

The committee's report mostly aligns with the above perspective, as it says "the quasi-judicial arm of SEBI has to be necessarily ring-fenced so that there is truly check and balance on the executive arm of the regulator. Within SEBI (as indeed any other regulator), the doctrine of separation of powers must be followed in letter and spirit. If performance of the quasi-judicial officers is appraised by the executive arm, the very foundation of separation of powers would be nullified."

This will prevent SEBI from dictating the laws to the public. The committee has rightly acknowledged that "check and balance against SEBI’s actions in its civil proceedings is a post-facto, post-decisional appellate review in the form of first appeal before the Securities Appellate Tribunal (SAT). Further, the appeals from the decisions of the SAT lie in the SC and that too only on the questions of law."

In effect, this means there are no checks and balances on SEBI's actions before an appeal is filed against its order with the tribunal — but then much of the damage is already done.

Therefore, the committee report says, "Cost inflicted with an issuance of direction not to deal in securities cannot be quantified easily and further complexity would be added by the period for which such directions are issued."

As per the committee's report, the proceedings initiated by SEBI in 2021-22 skyrocketed to 7,195 cases compared to 562 cases in 2020-21 and just 249 cases in 2019-20.

On the contrary, SEBI's record in initiating criminal prosecution even in the most grave cases is poor even though it has powers to do so. In a matter as big as the NSE co-location scam that involved data theft and forgery of agreements at India's largest exchange, SEBI avoided bringing criminal charges.&nbsp;

Why so?

As per the committee report, the adjudication of criminal prosecution alone is kept out of SEBI's hands. "SEBI has to satisfy an independent judge in the criminal justice system, about its allegations of violations having occurred. Whereas, all the other powers of regulatory intervention comport to the civil standard and the judicial authority for determination of the findings of fact and law are vested in the officers of SEBI," the committee notes.

What do former SEBI officials say?

Those who have tracked SEBI for long say such authoritative organisational structure has made posting at SEBI the most coveted one for bureaucrats across streams. It is no secret that SEBI chairperson(s) and WTMs are so influential that several corporate houses and listed companies surreptitiously reserve board and advisory positions for them ahead of their retirements. Thus, the heavy lobbying in New Delhi for the post of SEBI chairperson and WTMs too is well known.

“The apprehensions of the Supreme Court two decades back on the statutory scheme of the SEBI Act are surfacing now. In the Clariant International judgement in 2004 Supreme Court held that the wide jurisdiction of SEBI runs counter to the doctrine of 'Separation of Powers' and integration of power by vesting legislative, executive and judicial powers in the same body, in future may raise several public law concerns.” said Sumit Agrawal, Founder Regstreet Law Advisors and former SEBI officer.

“Non-judges with drastic powers statutorily is a concerning trend in regulatory laws and the regulatory architecture needs to be revisited.” said Agrawal, who is also the author of a book on the SEBI Act. It simply means that even though SEBI officials do not have extensive experience and the restraints of the law as a court judge would know, yet they enjoy all the quasi-judicial powers.

According to Deepak Sancheti, SEBI's former chief of surveillance, the principle of 'Separation of Powers' was crucial in framing India's constitution and it forms an integral part of the constitution's basic structure.

"Authorities like SEBI possess powers to enact laws, conduct investigations, and impose penalties. Since all of this is vested in just one single body, it creates a serious risk for citizens and raises concerns regarding the adherence to constitutional principles," says Sancheti.&nbsp;&nbsp;

Sancheti goes further to add that appeals against SAT decisions should be allowed in the High Courts.&nbsp;

"In practical terms, market participants often encounter a tendency within the SEBI quasi-judicial authorities to exhibit undue bias towards SEBI. These authorities frequently rule against individuals or entities under investigation, even in cases where SEBI's arguments are weak. Such practice unnecessarily compels affected parties to approach SAT, which is the sole forum available to such notices before the case moving to the Apex court but by then the stakes involved and cost of fighting SEBI for such individuals goes up significantly, which many may not be in a position to afford. Therefore, it is imperative to either establish 'Separation of Powers' within SEBI" or enact provisions allowing appeals against SAT decisions in High Courts," Sancheti said.

SC committee recommends self discipline first

To impose some discipline, the expert committee has asked SEBI to at least adopt the practices followed by the Competition Commission of India (CCI).

"CCI has segregation of its investigating arm from its quasi-judicial arm," the committee notes.

The CCI passes an order containing a prima facie need to investigate and gives the Director General (DG) of Investigations a period of 60 days to investigate. Indeed, investigations may not conclude in 60 days, but the DG has to provide a status report and seek extension of time to investigate. By this process, the investigation and its status and progress is overseen. Likewise, the legislation contains firm timelines for dealing with applications seeking approval of combinations and these are embedded into the law.

"It would be important for SEBI to study such practices and adopt such a framework into subordinate legislation governing SEBI’s enforcement. Such self-discipline provisions do not need an amendment by Parliament to the SEBI Act," the committee has said.

SEBI did not reply to an email seeking its views and comments on the SC committee's remarks and suggestions on 'Separation of Powers.'

A six-member expert committee appointed by the Supreme Court (SC) this year has suggested implementing the doctrine of "Separation of Powers" within SEBI.


Palak Shah