Following on its board's decision to revive charges against NSDL for IPO allotment and share dematerialistion irregularities, market regulator Sebi has implemented the orders passed nearly two and half years ago.
The orders, in two different cases, were passed by a Sebi committee in December 2008, but were later dismissed as "null and void" by the board of the market regulator.
However, an intervention by the Supreme Court forced the Sebi to revive the matter and Sebi's board last evening took an unprecedented decision of reviving the charges declared as "non-existent" in the past.
Subsequently, Sebi has now implemented the orders and the same were placed on its website on Friday.
The said irregularities during 2002-06 by NSDL relates to cases of IPO scam and trading in unlisted shares of a company DSQ Software upon irregular dematerialistion.
The committee, comprising the then Sebi board members G Mohan Gopal and V Leeladhar, was constituted in 2008 to look into NSDL's role in the IPO scam and it found various lapses on the part of the depository and had asked NSDL as also Sebi itself to take corrective measures.
However, Sebi dismissed the findings on the ground that the committee breached its mandate in making these charges.
Besides, Sebi had also previously dropped its proceedings against NSDL in the DSQ Software matter, where the depository was accused of lapses in dematerialising 1.30 crore shares of DSQ Software, which were later sold in market without listing.
Now, as Sebi has implemented the orders, NSDL would have to comply with them, unless it decides to challenge the same.
After the Sebi board meeting, chairman U K Sinha told reporters that the regulator would ask NSDL to comply with the findings of the report, but did not divulge further details.
As per the order, NSDL has been asked to conduct an independent enquiry to establish individual responsibility for its failure and put in place remedial measures.
The committee also asked Sebi to conduct an independent audit of its systems to prevent trading of unlisted shares in demat form and assess the need for any remedial actions.
In the case of IPO irregularities also, NSDL has been asked to conduct an independent probe and take the remedial actions. It also asked Sebi to take the corrective measures.
When contacted, Mohan Gopal declined to comment on the Sebi board's decision.
Mohan Gopal wrote to the Prime Minister in December 2010 that Sebi board abused its powers to protect its then Chairman C B Bhave from facing an independent inquiry with respect to his actions as NSDL Chairman during the IPO scam.
The PMO had sent the letter to the Finance Ministry, which in turn forwarded the same to the Sebi, but did not get a reply despite three reminders.
This is the first instance of Sebi revisiting an issue previously dismissed by it, as also an unprecedented case of the regulator being open to a report, where its own role has been criticised.
Commenting on the development, a former Sebi board member said that it was a welcome move as the regulator has accepted the need for its own introspection and has opened up to its own criticism, at least by its own committee.
He said that conflict of interest was becoming a major issue for the market and regulators like Sebi can send a strong message by taking strong actions in such cases.
He was referring to the role of Bhave, who was heading NSDL during the period of alleged irregularities.
Also, the Sebi declared the two-member committee's probe into the matter as 'non-existent' at a time when Bhave was serving as chairman of the regulatory authority.
While Bhave had recused himself from the meetings whenever the NSDL matter was discussed, it has been still alleged in various court petitions that he might have influenced the decision of other Sebi board members.
Bhave served as Sebi chairman for three years till February 17, 2011. Prior to joining Sebi, Bhave was heading NSDL, the leading national depository that enables holding of shares and other securities in demat or electronic format.
NSDL had come under scanner in 2006 in connection with the IPO scam, wherein various entities had fraudulently cornered shares reserved for retail investors and sold them later after the listing.
The depository was accused of not following best practices to detect opening of thousands of fictitious accounts in the name of retail investors for share allotment in IPOs between 2003 and 2006.
After investigating into the matter, the Mohan Gopal Committee submitted in December 2008 that NSDL failed in its duty and also made adverse remarks about the manner in which Sebi had handled the issue of IPO scam.
The matter reached the Supreme Court earlier this year after a special leave petition was filed in the apex court against Sebi's rejection of the committee report.
The court expressed its unhappiness at the outright rejection of the report and asked Sebi on March 28 to reply on whether it would revisit its decision to give a clean chit to NSDL.
Subsequently, Sebi called a special board meeting on April 26, wherein it was decided to reconsider the Mohan Gopal committee's report.
Sebi informed the Supreme Court about this decision on May 9, after which the court listed the matter for further hearing in August.