Mint Explainer: Former Sebi chief Buch and five others face fraudulent listing allegations

Justice SG Dige of the Bombay High Court set to hear the petitions today. 

Mint breaks down the details of the case.

Who are the people involved?

The allegations are against former Sebi chairperson Madhabi Puri Buch; current WTMs Ashwani Bhatia, Ananth Narayan G, and Kamlesh Varshney; former BSE chairman Pramod Agarwal; and current BSE managing director and chief executive officer Sundararaman Ramamurthy.

The complainant is Sapan Shrivastava, a Dombivli resident who claims to be a journalist.

What are the allegations?

Shrivastava has alleged stock market fraud and regulatory violations in his complaint, which stated that Shrivastava and his family invested in shares of Cals Refineries Ltd, a company listed on BSE Ltd since 13 December 1994. He claimed that the company was listed without proper regulatory approvals.

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In his complaint, he said that an RTI response from Sebi showed that Cals did not meet the listing requirements and did not obtain the necessary no-objection certificate from the regulator or exchange, making its listing illegal.

Shrivastava also claimed that the regulator failed to take action against the company or the exchange officials, leading to financial losses for investors like him. He also alleged that the officials received illegal benefits and failed to protect investors.

Shrivastava said he was forced to approach the court as the police and regulatory authorities did not act on his complaint.

What is Cals Refineries?

Cals Refineries Ltd is registered in Delhi and claims to be involved in the refineries and marketing industry.

The BSE website shows that trading in Cals shares stands suspended due to penal reasons. The company’s latest annual report filed with BSE, for FY17, clarified that the trading of its shares was suspended on 8 August 2017, after the ministry of corporate affairs identified it as a shell company. BSE placed the company under stage VI graded surveillance, in which trading is limited to once a month without upward price movement.

Why did the court order the registration of an FIR?

The special court found that the allegations disclosed an offence that necessitated an investigation.

Special judge SE Bangar directed the anti-corruption bureau (ACB), Mumbai, to register an FIR against the six accused and submit a status report on the investigation within 30 days of the order.

“There is prima facie evidence of regulatory lapses and collusion, requiring a fair and impartial probe. The inaction by law enforcement and Sebi necessitates judicial intervention,” the court said on March 1.

What do the officials’ petitions say?

Aggrieved by the court order, the accused official filed petitions in the high court on 4 March, seeking to have it quashed.

They argued that the special court failed to consider critical aspects of the case. Their petition said no liability could be placed on the six accused for the 1994 listing as they were neither members of Sebi board at the time of the alleged offence.

They also said the judge failed to follow the mandatory requirement of obtaining prior approval from the central government under the Prevention of Corruption Act before initiating an investigation against public servants.

Additionally, the allegation that Cals was illegally listed on the BSE without regulatory compliance is unfounded and unsupported by evidence, they said.

“The judge ought to have noted that the information (as sought in an RTI query) regarding compliance with Sebi and obtaining an NoC was not available with them (in response to the RTI query). The same does not establish that Cals had not met the requisite compliance,” the petition said. “At the relevant point in time, there was no requirement for obtaining an NoC from Sebi for listing any shares on the BSE,” it added.

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The petition claimed Shrivastava suppressed Sebi’s action against Cals in 2013 over market manipulation allegations related to the issuance of global depository receipts (GDR). The company was fined ₹10 crore by Sebi and restrained from issuing securities for 10 years in 2013.

Finally, the six accused also raised concerns about procedural fairness, claiming they were not given the opportunity to present their side before the order was passed.

The petition also pointed out that Shrivastava was “a habitual complainant who has filed several vexatious proceedings which have come to be reprimanded by the courts with costs”. It also included orders from the Bombay High Court that not only imposed penalties but also directed the registry not to entertain any future petitions by Shrivastava unless proof of payment of these fines was submitted.

What will happen today?

The six accused have sought a stay on the execution of the order, which the court granted on Monday when the matter was mentioned for an urgent hearing.

Solicitor general Tushar Mehta will appear for the current WTMs, and senior counsel Amit Desai for the BSE official.

They will ask for a continuation of the stay on the lower court order until the petition is finally heard and disposed of.

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