CB Bhave: PE in MCX-SX could be a diversion away from real culprits in NSEL case

Subhomoy Bhattacharjee Posted online: Monday, Mar 31, 2014 at 0000 hrs
New Delhi : In an interview to Subhomoy Bhattacharjee, former Sebi chairman CB Bhave says the agency could have avoided the public spectacle by contacting him first, and wonders whether it is a diversion away from the real culprits in the NSEL case:

What would you say on you being named along with your former colleague KM Abraham by the CBI in the preliminary enquiry for alleged irregularities in granting permission to MCX-SX in 2008 and subsequent renewals in 2009 and 2010?

I have already said and I reiterate that there were many people who handled this matter before it came up to me. I approved the proposal and I take full responsibility for it. Other officers cannot be held responsible and picking out just Abraham out of all of them is totally arbitrary.

On Wednesday, CBI director Ranjit Sinha said in an interview that “Thousands of crores of investor money have been swindled by MCX and it was incumbent on the agency (CBI) to look at the very procedure of registration of MCX” by Sebi. What is your reaction to the connection CBI is drawing between the NSEL case in a commodity market and the licence given to MCX-SX to work as a currency exchange in 2008?

The payment crisis occurred in NSEL and not MCX. Neither was NSEL licensed by us nor was it under Sebi’s supervision. MCX-SX is an entity separate from both MCX and NSEL.

It is nobody’s case that thousands of crores of investors’ money was lost in MCX-SX. Either CBI has not seen the papers carefully or they are just floating trial balloons to see if they can somehow justify their PE (Preliminary Enquiry). NSEL, where the losses to investors occurred were given permissions by the Government of India, the ministry of consumer affairs.

Why do you say trial balloons?

That pending income tax investigation against group companies was another trial balloon they had floated. They forgot to mention that the investigation was closed later without any adverse findings. The issue was discussed in Sebi during my time. The same group was licensed by Central Electricity Regulatory Commission in June 2008 to run a power exchange in full knowledge of the income tax investigation. These facts would be part of Sebi papers. They just need to study the papers carefully.

The questioning of Jignesh Shah on NSEL case by CBI happened on the same day as the PE against you in MCX-SX case. What could be the connection?

It is quite incomprehensible. NSEL was given the permission for one day ready forward by the government in 2007. The fraud in NSEL occurred in 2013. We, in Sebi permitted MCX-SX to trade in currency derivatives in September, 2008. How is Sebi’s permission of 2008 to MCX-SX connected with the problems in NSEL in 2013? Moreover, in June, 2008 CERC permitted another group company of the same group to start a power exchange. The same MCX-SX was permitted by Sebi to trade in equities in 2012, long after both Abraham and I had left. The CBI finds no connection between these other permissions and the NSEL crisis. It seems to discover a connection only with the permission Sebi gave in 2008.

How do you in retrospect evaluate the role played by KM Abraham in the grant of licence and subsequent renewals, especially was he right in his interpretation of the MIMPS (increasing public shareholding in stock exchanges) guidelines?

I have no access to the original papers and it is not easy to remember the notings that are almost six years old. But the quality of Abraham’s advice is irrelevant. The relevant fact is that I approved the grant of licence to MCX-SX for currency derivatives trading. If anything, I need to be questioned. Even if you assume that Abraham’s interpretation was not right, it is not criminal to go wrong in your interpretation. Many times higher courts do not agree with the interpretation of the lower courts.

Did Sebi take into consideration that though not in securities market domain, NSEL did exist and was possibly dodgy?

As far as I can remember NSEL had not started its regular activities when Sebi considered MCX-SX’s case for currency trading. There was no way of saying that NSEL was dodgy at that time. This question may be relevant when Sebi permitted MCX-SX to trade in equities. But that was in 2012 and I had left by then.

Is there a possibility that there is a political angle to the spate of allegations made by CBI?

I have no way of assessing that. I certainly know that we could have avoided this public spectacle if CBI had first got in touch with me, and asked me what I would say to their various doubts in the case. They could then have seen the papers and made up their own mind. Instead they chose to go to the media first. They float various theories, some on condition of anonymity. The latest one is that the currency derivatives licence to MCX-SX is connected to the loss caused to the investors in NSEL. This is as outlandish as it can get. There were murmurs, initially, that the entire proposal was processed by us in the space of one day. I do not hear much of that now. CBI must have seen the original file and realised that the matter was processed at different levels for more than a month.

Since the CBI would have needed some information from Sebi and we believe they did, wasn’t there space for Sebi to have clarified the air on MCX-SX licence?

I would not know what transpired between the CBI and Sebi. You may have more information. Some people told me that Sebi wrote to the Central Vigilance Commission that the matter was approved in a day. I do not believe it. When Sebi has all the papers why would Sebi mislead CVC? Sebi pulls up companies if they give misleading information to investors in the prospectus or as a part of listing requirements. Why would Sebi damage its own credibility by misleading another governmental agency? But if Sebi did mislead CVC or CBI, that would be a very serious issue, indeed.

Of the three chairmen of Sebi who examined the MCX-SX matter, why is it that you are the only person who has been named in the PE?

I would again not know. It is arbitrary. The whole procedure is absurd. I do not understand what public purpose is served by naming people at the PE stage especially if CBI itself says that it closes 60 per cent of the PEs. An arm of the government, which has the authority to use the coercive power of the state must be conscious of the care with which such matters need to be handled. I do not know if this is merely a diversion away from the real culprits behind the NSEL issue.

The issues are being raised now when a general election is happening. Do you see a connection?

I really can’t. I have no connection with elections except as an interested citizen of this country.