Mint Explainer: The fraud allegations on former Sebi chief, five others

Apart from Buch, who recently stepped down as Sebi's chair, the others named in the case were former BSE chairman Pramod Agarwal; current BSE managing director and chief executive Sundararaman Ramamurthy; and three current Sebi whole-time members—Ashwani Bhatia, Ananth Narayan G., and Kamlesh Varshney.

Mint breaks down the details of the case.

What is the case?

The case revolves around the allegations of stock market fraud and regulatory violations in the listing of Cals Refineries Ltd by complainant Sapan Shrivastava, a Dombivli resident who claims to be a journalist. 

Shrivastava's complaint states that Shrivastava and his family had invested in Cals Refineries, a company listed on BSE Ltd, since 13 December 1994. He claims the company was listed without proper regulatory approvals.

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In his complaint, he said 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 does Cals Refineries do?

Cals Refineries 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 for the Mumbai anti-corruption bureau (ACB) found that the allegations disclosed an offence that necessitated an investigation.

Special judge S.E. Bangar directed the Mumbai ACB 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 1 March.

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 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 to obtain a NoC from Sebi to list any shares on 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 did the Mumbai high court say?

Justice S.G. Dige found the order to have been passed mechanically and put a stay on it till the next date.

“After hearing all parties and going through the order, it appears that the judge has passed the order mechanically without going into the details and attributing specific roles to applicants. Order stayed till next date," said Dige's oral order.

The court also granted Shrivastava four weeks to file his reply to the petition, as he requested.

Solicitor general Tushar Mehta appeared for the current whole-time members, and senior counsel Amit Desai for the BSE official.

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