Causing much embarrassment to SEBI and RBI, the Supreme Court on Friday, severely criticised their negligence, in allowing multi-crore scams and ponzi schemes to flourish right under their noses, in various parts of the country. The Court was hearing a petition filed by the Central Bureau of Investigation investigating the multi-crore Saradha scam along with other Ponzi scheme defrauding clients to the tune of Rs 2,000 crore in West Bengal and Odisha. The Court stated that it was their irresponsible behaviour that such humongous scams had not only given birth to such scams, but had also helped them in “flourishing unhindered.” This was the first time that the activities of these reputed financial institutions have been brought under the scanner, so openly by the Court.
A Bench headed by T.S. Thakur pointed out that the Court had on a previous occasion, warned Securities and Exchange Board of India [SEBI], Registrar of Compannies [RoC] and Reserve Bank of India [RBI] from turning a “blind eye” to such cases proliferating in their domains and operational areas. The Court was referring to the occasion when it ordered a CBI probe in these multi-crore scams.
The Court also perused an order from last year (May 9, 2014), which had speculated bribes being accepted to look the other way, by the officials of the very financial institutions who were supposed to investigate. The Bench stated in no unclear terms that all those who are guilty of such negligence and connivance will be investigated. It had observed that the regulatory authorities garner their power and jurisdiction from various Central legislations and such any hint of bungled probe or tolerance of wrongdoings by those who were supposed to prevent such scams from happening warrants a thorough investigation, even if it prompts an inquiry into a “larger conspiracy” bringing regulatory authorities under extensive scrutiny. The Court had pointed that such activities are representative of a widespread apathy, if not direct criminal negligence on the part of the officials, who allowed such nefarious schemes to go unchecked for years, impoverishing and ruining many a lives.
The observations of the Court have a come nearly a month after Rajiv Agarwal, a SEBI member was questioned by the CBI. Earlier, CBI had interrogated several other SEBI officials, but it was the first time a whole-time member was examined.
Though SEBI had pleaded earlier that since the companies involved in such Ponzi and other fraudulent collective investment schemes, operated their business via chit-fund companies, they did not fall within SEBI’s jurisdiction. Nevertheless, the Court pointed out that despite arguing that it had no jurisdiction, SEBI had earlier, on two different occasions itself, had sent notices to these companies ordering them to wind up their allegedly fraudulent operation and refunding the money borrowed from the people. SEBI thus, is estopped from arguing that it had no jurisdiction or interest in the matter.
The observations of the Court may cause SEBI and other regulatory authorities much discomfort and spark their descent from the high horse of impartiality and integrity which has helped them garner many accolades and a spic and span image all these years, otherwise uncanny and scarce in governmental organizations.
by Siddhartha Singh