Sebi order in NSE's Chitra Ramkrishna case is a job half done

The Securities and Exchange Board of India's (Sebi) 190-page final order against former National Stock Exchange (NSE) CEO Chitra Ramkrishna and others raises more questions than what it seemingly appears to answer.

But before that, let's dwell on the drama script.

The dramatis personae in the case is led by Ms Ramkrishna, who in her deposition before Ananta Barua, whole time director at Sebi, states that she was guided by a spiritual person in her affairs at the country's premier stock exchange through an email ID! This faceless yogi was also responsible for the appointment of Anand Subramanian, who joined as chief strategic officer in April 2013 and within two years was re-designated as group operating officer and advisor to MD.

As it turns out the NSE through a letter, dated November 27, 2018, to the Sebi had submitted that its legal advisors had consulted practitioners dealing with human psychology and as per the opinion of human psychology expert the noticee was exploited by Noticee no. 6 (Mr Subramanian) by creating another identity in the form of Mr. Rigyajursama to guide her to perform her duties according to his wish. "The Noticee no. 1 was manipulated by the same man in the form of different identities; one as Noticee No. 6 who enjoyed her trust and other as Mr. Rigyajursama who had her devotion and dependence," goes a para in the order.

But Mr Barua reasons that the regulator did not go with the view that Mr Subramanian and the spiritual yogi were the same person since Ms Ramkrishna in her defence had stated that she was never examined by the exchange, the forensic agency or the psychologist about the same. Barua reasons: "I note that the observations made in the E&Y report submitted by Noticee no. 2 are not being relied upon to the extent that the unknown person was Noticee no. 6. Further, the psychology report obtained by the legal advisors of NSE are also not being relied upon as they have been independently conducted in the absence of Noticee no. 1."

So, Mr Barua chose to do his own questioning. Here's how it went:

Mr Barua: Can you please share the identity of the email id holder 'rigyajursama@outlook.com'

Ms Ramkrishna: The Siddha Purusha/Yogi is a Paramahansa who maybe largely dwelling in the Himalayan Ranges. I have met him on occasions in holy places. No locational co-ordinates are given.

Mr Barua: Given the fact that the Siddha Purusha largely dwells in the Himalayan Ranges, kindly explain how He would have accessed emails and corresponded with you regularly.

Ms Ramkrishna: To the best of my knowledge, their spiritual powers do not require them to have any such physical co-ordinates.

Mr Barua: Can you please share when you met him and who introduced you to Him.

Ms Ramkrishna: I met Him for the first time on the banks of the Ganges nearly 20 years ago directly. Subsequently, over the years I have taken his guidance on many personal and professional matters. Along the way, since He would manifest at will and I did not have any locational co-ordinates I requested Him for a way in which I could seek His guidance whenever I felt the need. Accordingly, He gave me an id on which I could send my requests.

Mr Barua: Is the Siddha Purusha some person who was from NSE/NSE Governing Board at any point of time?

Ms Ramkrishna: No, he is a spiritual force.

Mr Barua: Can you please elaborate as how the Siddha Purusha was aware about a lot of intricate details on the functioning and hierarchy at NSE.

Ms Ramkrishna: Largely, I would have provided that inputs.

Mr Barua: In the majority of correspondence it is observed that Shri Anand Subramanian was marked a copy. Please explain.

Ms Ramkrishna: Primarily, I had clarity on issues that I sought. Who else and whom he would correspond with was outside my purview. He may have corresponded with any others too.

Based on the feeback, Mr Barua goes on to state: "It is unfortunate that the head of the leading and largest stock exchange in India has had to resort to such attempts to justify her actions of sharing confidential information pertaining to NSE with an unknown person. I find that it is bizarre attempt at concealing the identity of the unknown person. Clearly such an attempt is unacceptable. It only gives more credence to the findings that the appointment, delegation of power and increase in compensation of Noticee no. 6 (Mr Subramanian ) was arbitrarily done and orchestrated by Noticee no. 1 as the MD & CEO of NSE for ulterior motives or reasons."

So, what is the final outcome of the order?

Ramkrishna has been barred from being associated with any market infrastructure institution or Sebi-registered entities for three years. Besides, fines of ₹3 crore were levied on Ramkrishna, ₹2 crore each on the NSE, Narain and Subramanian and ₹6 lakh on V R Narasimhan, who was the chief regulatory officer and chief compliance officer.

The order states the material available on record does not indicate the amount of specific loss caused to investors or group of investors as a result of the default by the noticees, except payment of excessive fees to Noticee no. 6 and encashment of leave, bonus etc, by Noticee no.1. Sebi has directed the NSE to deposit the excess leave encashment of ₹1.54 crore and deferred bonus of ₹2.83 crore of Ramkrishna in its Investor Protection Fund Trust.

The question that begs to be asked has Sebi done enough to repose faith in it as the country’s securities regulator?

There are several loose ends in the order.

1) Since the regulator is convinced that Anand Subramanian and the person communicating through the email were not the same person, why did it not file a criminal complaint with the CBI or chose to unearth the identity of spiritual yogi behind the email id rigyajursama@outlook.com? Forensic experts would have easily found out the identity behind the email.

2) Why did the Sebi not seek recourse under Section 78 of the IT Act which states that “notwithstanding anything contained in the Code of Criminal Procedure, 1973, a police officer not below the rank of Inspector shall investigate any offence under this Act.” Also given that the Criminal Procedure Code, 1978 and the Indian Penal Code, 1860, were also amended to introduce cyber-crime under their ambit, why did the regulator not pursue actions under the relevant law?

3) Given that the algo colocation scam was exposed in during the tenure of Chitra at the helm, why did Mr Barua not highlight that aspect in the current order?

4) What accountability has the regulator sought from the board members during the tenure of Chitra & Co?

5) Why hasn’t the Sebi asked a status report on the checks and controls that the exchange has made post the Chitra fiasco?

The National Stock Exchange is not a small market intermediary, but is the country’s premier stock exchange and also runs a virtual monopoly in the derivatives business. It's a sad commentary that instead of seeking to repose faith both in the NSE and resurrect its own regulatory aura, the Sebi is dimming its own halo.

It has also not helped how Sebi has handled the algo case wherein after severely indicting Narain and Chitra in its 2019 final verdict, this month the regulator said it was dropping the charges against the NSE, Narain and Chitra under the stringent provisions of the Prevention of Unfair and Fraudulent Trade Act and charging them under the SCRA (Securities Contract Regulations Act) and SECC (Stock Exchanges and Clearing Corporations Act). Instead, it has imposed a fine of ₹1 crore on the NSE and ₹25 lakh each on Narain and Chitra.

Before the regulator holds boards and market intermediaries accountable for upholding their fiduciary responsibility, the onus to show the way has to come from Sebi.