Former Sebi member KM Abraham, who had complained to the Prime Minister's Office (PMO) on 1 June this year against the pressures being mounted by the finance ministry under Pranab Mukherjee to influence cases involving "powerful corporate interests," has documented at least five such cases.
He also claimed that Sebi chief UK Sinha was transmitting these pressures to see that these corporate groups got off lightly for their alleged transgressions.
Among the corporate interests mentioned were the two Reliance groups, the Sahara group, and issues involving the promoters of the Bank of Rajasthan and MCX-SX stock exchange, a company floated by Jignesh Shah of Financial Technologies.
While the Reliance and Sahara cases have been well documented by Firstpost in earlier exposes, the cases involving Bank of Rajasthan and MCX (Multi Commodity Exchange) are less well-known.
So what did Abraham have to say about them?
In his letter to the PM, Abraham suggests that Sinha showed "extremely unusual" interest in them, and asked Abraham to handle them gingerly.
The Bank of Rajasthan, before it was merged with ICICI Bank under pressure from the Reserve Bank of India (RBI) in 2010, was owned substantially by the Tayals. The central bank was always suspicious about their ownership of the bank, and in the first week of March 2010 it ordered a special audit of the bank's accounts and lending policies by Deloitte.
A week earlier, the RBI had fined the bank Rs 25 lakh for what The Economic Times called a "string of violations.. . in property transactions, anti-money laundering norms, irregularities in the conduct of accounts of a corporate group and failure to provide certain documents sought by RBI."
Among other things, the central bank suspected that SK Tayal, a relative of the promoter PK Tayal, was influencing credit decisions.
As in the case of the Sahara Group, where Sebi action followed the RBI's decision to ask a non-bank company in the group to wind up, in the Tayal case, too, Sebi followed up on the actions initiated by the banking regulator.
In the second week of March 2010, Sebi banned 100 entities belonging or linked to the Tayal group from the share market for alleged malpractices. Among other things, Sebi claimed that when the promoters had indicated that they were reducing their stake in Bank of Rajasthan from 44.71 percent to 28.61 percent to comply with an RBI directive to do so, the Tayals had actually increased their stake clandestinely to 55 percent.
Among other things, this increase in shareholding was also a violation of Sebi's takeover norms. According to DNA, the "regulator, during the investigation, had identified four distinct groups operating in the shares of Bank of Rajasthan. They included promoters of the company, other Tayal group companies and two entities known as the Yadav group and the Silvassa group."
Abraham was the Sebi member who issued the ban order on the Tayals and the reasons for the political pressure on Sebi to go easy on the Tayals came because around mid-2010, the bank was merged with ICICI Bank and its promoters received ICICI Bank shares in exchange for their holdings in Bank of Rajasthan. The Sebi market ban was preventing them from cashing in by selling the ICICI Bank shares they got in exchange.
Now let's hear what Abraham's complaint letter to the PMO said about the Bank of Rajasthan case:
"The chairman (Sinha) asked for a review of the enforcement matter and personally requested me to examine whether the case can be settled through the 'consent' mechanism. He asked me to explore the possibility of allowing the promoters to sell the ICICI Bank shares received by them. I explained to him that the Sebi interim orders prohibiting market transactions of the promoters cannot be selectively waived for this. I decidedly cold see that he was under pressure from extraneous forces."
A consent order is one where Sebi asks the offending party to pay a penalty and the latter pays up without admitting guilt. But Abraham was apparently put off by the political pressures being brought on him to do so.
Abraham, who reverted to his parent Kerala cadre after his Sebi term ended on 20 July, asked for the PM's intervention since the external pressures were compromising the integrity of Sebi officers.
Said Abraham: "Whether the pressure exerted on Shri Sinha by the above-mentioned interests (by this Abraham meant all the cases and not merely that of the Tayals) yield the obviously execrable and illegal outcomes intended by the vested interests behind the same no doubt depends on whether the whole-time member and officers succumb under such pressure, requests, demands or suggestions that get conveyed to them through the chairman. This clearly is a matter that will have to largely do with the personal integrity of the officers themselves. But the fact that briefing notes are being prepared on selected enforcement cases and are being discussed outside Sebi is already sapping the vitality of the investigative machinery in Sebi."
Abraham has sent the complaints filed with the PMO also to the Central Vigilance Commission for necessary record and action.
Published Date: Oct 29, 2011 11:13 am | Updated Date: Dec 20, 2014 04:54 am