Virendra Verma & Yagnesh Kansara

Mumbai, June 14: The Securities and Exchange Board of India (Sebi) has issued notices to the office bearers of Central Depository Services India Ltd (CDSL), including its chairman and managing director MG Damani, the nominee directors from the Bombay Stock Exchange (BSE) Ms Deena Mehta and Bhagirat Merchant (former BSE president) seeking their clarifications on their being directors on CDSL board for over three years.
However, former president of BSE Anand Rathi has not been issued the notice following his resignation as director of CDSL early this month. CDSL was established in 1997. The Sebi has sought the clarification because while granting the permission to CDSL for its depository business, Sebi had inserted a condition that CDSL elected director cannot hold this post for more than three years.

This was accepted by the CDSL board, and accordingly the office bearers are not expected to continue beyond three years.

Speaking to The Financial Express, Sebi board member Prof Jayanth R Varma confirmed that Sebi had sent notices to CDSL seeking clarifications from the BSE-promoted depository and its nominee directors. “We have asked for their reply on this subject and will examine all the issues before taking any decision.”

All three — Ms Mehta, Mr Merchant and Mr Damani — were elected as directors of CDSL in 1997 at the time of setting up the depository.

Their three-year term, therefore, technically ended in 2000. But they still continue on the CDSL board. Mr Damani on becoming CDSL CMD has since surrendered his BSE membership. According to sources, the three-year condition was incorporated in the articles of association of CDSL. Even as the reply of these directors and CDSL is awaited by the market regulator, different views are emerging over this issue. Legal experts meanwhile debate whether the day the depository got registration should be the day from which the tenure is taken into account, or whether the day it started operations should be the key to deciding the tenure.
This issue gains importance as the depository only started operations in 1999, almost two years after it was incorporated. Both Ms Deena Mehta and Mr Bhagirat Merchant represent BSE, the largest shareholder, on the board of CDSL. CDSL CMD MG Damani however, declined to comment on the issue despite repeated attempts to seek his views.

Ms Mehta however, confirmed about Sebi seeking clarifications on the tenure for the directorship of the CDSL. However, she said she was nominated by the BSE on the CDSL board and she will abide by whatever decision is taken by the BSE’s governing board.