'Pranab pressured Sebi to go easy on RIL, save Rs 1,500 cr'
Former Sebi member KM Abraham's complaint letter to the PMO against pressure from Pranab Mukherjee is with Firstpost. Here's the full monty
A month-and-a-half before he demitted office, former Sebi member KM Abraham wrote an anguished letter to the Prime Minister alleging pressure from Finance Minister Pranab Mukherjee and his advisor Omita Paul to "manage" cases against powerful corporate groups which were being investigated by Sebi.
Among the groups which were allegedly pressuring him were Sahara, Reliance Industries, the Reliance-ADAG group, Bank of Rajasthan and the Multi-Commodity Exchange (MCX).
Firstpost has, in its possession, the full letter written by Abraham, dated 1 June 2011, obtained under the Right to Information Act from the Prime Minister's Office (PMO). We had asked for all the three letters written by Abraham to the PMO, but the latter released only one of them, apparently on the advice of Abraham.
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In one of the cases, involving Sahara, Abraham delivered an order on 23 June this year to close down two dubious money-raising schemes, and this order was upheld by the Securities Appellate Tribunal (SAT) on 18 October. The Sahara Group is likely to appeal against the SAT verdict in the Supreme Court.
But another major case, involving insider trading by Reliance Industries Ltd, is still to be decided. And in this case, Abraham clearly alleges that Sebi Chairman UK Sinha had been pressuring him to find a way to get the Mukesh Ambani company off the hook. If Abraham had had his way, Reliance would have been fined Rs 1,500 crore in the consent order.
This is what Abraham said in his letter.
"The chairman (UK Sinha) asked for a review of the enforcement matter in this (Reliance insider trading) case and personally requested me to see whether the case can be settled through the consent mechanism in Sebi. I explained to him that the unlawful gain by the company, prima facie, established in the investigation, has been placed at over Rs 500 crore and that under the Sebi Act the punishment could be upto a maximum of three times that amount.
"He then requested me to look into the transactions and see whether there are classes of transactions that can get a benefit of doubt and be excluded in the computation of unlawful gains. Here again, I could see that he (Sinha) seemed to be acting under compulsion to make such a request to me."
Clearly, what Abraham seems to be saying is that Pranab Mukherjee and Omita Paul were pressuring Sebi chief Sinha to "manage" such cases so that it "becomes easy" for him and Reliance is saved from having to fork out Rs 1,500 crore.
The Reliance insider trading case involves the sale of shares of Reliance Petrochemicals Ltd (RPL) held by the parent company Reliance Industries Ltd just before the former was being merged with the latter.
RIL had first sold RPL shares in the futures and options (derivatives) segment. But when it sold the actual shares in the spot market, it covered the sale in the derivatives position. In doing so, it made a profit of Rs 500 crore - on which it paid the relevant taxes. But Sebi said this amounted to insider trading and went against the interests of minority shareholders.
Even if Sebi were to negotite a consent order - where the company being investigated pays a fine but without accepting guilt - the amount would work out to Rs 1,500 crore. That's not peanuts even for a rich company like Reliance.
Abraham's letter to the PMO makes no bones about the fact that the pressure on Sinha came from "the big man" Pranab Mukherjee and the "lady" Omita Paul.
Says Abraham: "The admission of the chairman in his own words about the need to 'manage' some of the cases now live in Sebi about the interest that the Union finance minister has in some of them, the admission that Smt Omita Paul is behind what is happening, the difficulty that he (Sinha) is experiencing in interacting with key ministry officials - suggest to me that Shri Sinha is being pressured to intervenew in several cases that are currently being dealt with in Sebi."
Asking Manmohan Singh to take urgent corrective action, Abraham emphasises that "the regulatory institution is under duress and under severe attack from powerful corporate interests, operating concertedly to undermine Sebi."
He concludes: "What I see happening now is a calculated assault on the regulatory framework in Sebi. A message is now spreading that cases against the influential and the powerful might put officers in Sebi to undue risk and scrutiny...This will, in no time, incapacitate the investigative machinery in Sebi. Needless to say, it does not bode well for the safety and integrity of the markets and for investors."
Abraham, who was denied an extension by the finance ministry when his term ended on 20 July, has since faced a concerted attack from both the finance ministry and Sinha for his letter to the PMO.
While the finance ministry dismissed Abraham's allegations as a "complete distortion of facts which are defamatory and devoid of truth", it claimed that there were several complaints against Abraham ranging "from abuse of power to corruption and purchase of a flat at a concessional rate from an entity that had benefited from the sale of office space to NSE which is regulated by Sebi and of which Abraham was a whole-time member with the jurisdiction to decide on many issues of critical importance to NSE."
As for Sinha, he claimed in a letter to the ministry that "Abraham was frustrated as he was neither given extension as Sebi whole-time member nor given the post of director, NISM, which he canvassed with the chairman to the state of embarrassment."
(With RTI documents from Raman Kirpal)
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