A bird flies past the logo of the Securities and Exchange Board of India (SEBI) at its headquarters in Mumbai on April 19, 2023.
| Photo Credit: REUTERS

The Securities and Exchange Board of India (SEBI) has blamed “external elements” for “misguiding” its staff, more specifically junior officers in House Rent Allowance (HRA) issues, to target its credibility and “its leadership”.

“It is our belief that SEBI’s junior officers, who were in large numbers, originally aggrieved in respect of HRA allowances, have been misguided, perhaps by external elements to believe that as “employees of a regulator”, they should not be held to high standards of performance and accountability even though they have in fact demonstrated that they are fully capable of delivering to high standards to the market ecosystem,” SEBI said on Wednesday (September 4, 2024).

They have been misguided also to believe that they were being underpaid even at a CTC of ₹34 lakh per annum and that it would be in their interest to “use issues of work culture to bargain for monetary benefits and to believe that they should get automatic promotions”, it said.

It opted not to name the “external forces” by saying “we would not like to speculate on who those external elements may be or what their motives might be”.

Responding to media report

On SEBI’s work culture, the market regulator released a five-page statement stating that the employees, in recent past, were demanding 55% increase in HRA over the allowances set in 2023 among numerous other benefits.

“Employees also raised an issue on updation of SEBI’s automated Management Information System for Key Result Areas (KRAs), which had been designed to bring more transparency, fairness and accountability within SEBI. A 15-minute silent protest was held in this context,” SEBI said.

It said a group of employees consciously designed a strategy to change the narrative to frame the issue as relating to the work environment “with an objective to have bargaining power to seek more benefits”.

“Accordingly, a letter focused on “work culture” was crafted and sent to HRD on August 06, 2024. Thereafter, after 7 days, apparently as part of the strategy, a second letter was submitted with a long list of 16 demands, for numerous monetary and non-monetary benefits including increase in HRA,” it added.

Further, automatic promotions at lower performance ratings without interviews was demanded, it further said.

Stating that SEBI officers were already well paid and for entry-level officers at Grade A, the cost-to-company (CTC) is ₹34 lakh a year that is comparable to private sector salaries, the regulator said the staff started demanding an additional CTC of almost ₹6 lakh per annum.

“The claims of unprofessional work culture in the letter dated August 06, 2024 are misplaced and seem to stem from instances such as under-pitching of processing capability of officers by as low as 1/4^th of actual capacity,” it said.

Also, misreporting of status of achievements of KRAs, shuttling of files between departments over a long period to avoid taking decisions and “adjusting” appraisal marks of poorly performing officers to “somehow” make them eligible for promotion, it said.

In such instances, the officers concerned have been held accountable, given firm feedback, and corrective actions taken.

“It is unfortunate that some elements have attempted to diminish the significant capabilities of SEBI employees by instigating employees to believe that, as “employees of a regulator” they should not be required to have such high standards of performance and accountability,” SEBI stressed.

“SEBI apprehends that the junior officers have been receiving messages from external elements outside their group, effectively instigating them to…go to media, go to the Ministry, go to Board…, perhaps to serve their own purpose,” it said.

“In fact, the letter of August 06, 2024 was not sent by the SEBI employee associations to the Government (and a section of the media). It was an anonymous email that was sent, and officers and associations have themselves condemned it and communicated the same to HRD through emails,” it claimed adding most unions have given in writing that they had not escalated the matter beyond the official channel.

Individually, SEBI imposed penalties in the range of ₹3 crore to 7 crore on Rana Sugars, its promoters, and other related entities.
| Photo Credit: Special arrangement

Markets regulator Securities and Exchange Board of India (SEBI) has debarred 14 entities including, Rana Sugars promoters’ and other related entities from the securities markets for two years and slapped a ₹63-crore fine on them on charges of diversion of funds.

The regulator also prohibited Inder Pratap Singh Rana (promoter), Ranjit Singh Rana (chairman), Veer Pratap Singh Rana (MD), Gurjeet Singh Rana, Karan Pratap Singh Rana, Rajbans Kaur, Preet Inder Singh Rana and Sukhjinder Kaur (promoter) from holding any position as director or key managerial person of any other listed company for two years.

On SEBI chairperson’s conflicts of interests

Ranjit Singh, Veer Pratap and Sukhjinder Kaur were also the promoters of Rana Sugars Limited, as per the exchange data.

Individually, SEBI imposed penalties in the range of ₹3 crore to 7 crore on Rana Sugars, its promoters, and other related entities.

“I find that noticee No 1 to 9, who are promoters of RSL and beneficiaries of such diversion of funds from RSL, have violated PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) regulations.”

“…also find that Noticee No 10 (Manoj Gupta), who was CFO and signed and certified such manipulated financial statements of RSL, aided and abetted such diversion of funds from RSL to its promoters and their family members violated PFUTP regulations,” SEBI’s Chief General Manager G. Ramar said in the final order on Tuesday (August 27, 2024.)

The probe revealed that Rana Sugars Limited failed to disclose Laxmiji Sugars Mills Company as a related party in FY 2016-17. Further, the firm failed to disclose FTPL, CAPL, JABPL, RJPL and RGSPL as related parties.

Inder Pratap, Ranjit, Veer Pratap Singh Rana, were persons in charge of and responsible for the affairs of Rana Sugars. Therefore, Rana Sugars, Inder Pratap, Ranjit Singh and Veer Pratap Singh Rana have violated the disclosure rules.

SEBI also noted with respect to the movement of funds between RSL and its related entities was not towards business advance for the purchase of sugar cane seeds and repayment of unsecured loan.

Related parties are Flawless Traders Private Limited (FTPL), Century Agros Private Limited (CAPL), Jay Aar Builders Private Limited (JABPL), RJ Texfab Private Limited (RJPL) and RGS Traders (RGSPL).

“These funds were then transferred by RSL to related parties on the same day to promoters of Rana Sugars and their family members. The regulator found that related parties aided and abetted Rana Sugars, its promoters and directors to divert funds from RSL and violated PFUTP norms,” the order said.

SEBI also directed Rana Sugars to recover ₹607 crore from related entities which includes ₹339 crore in receivables and ₹268 crore in interest dues.

Thereafter, the regulator directed Rana Sugars to take all necessary steps for recovery of dues from these entities and advised them to appoint an independent law firm to take effective steps for recovery in consultation with the NSE.

The markets watchdog also observed that RSL, Inder Pratap Singh Rana, Ranjit Singh, Veer Pratap Singh, Gurjeet Singh, Karan Pratap Singh and Rajbans Kaur have failed to provide any explanation for not appearing before the investigation authority (IA).

Further, they also failed to furnish information/documents sought by the IA, which hampered the investigation process, thereby, violating SEBI norms.

The order came after SEBI investigated the affairs of RSL to examine the diversion of funds from the company by the promoters and promoter-related entities of Rana Sugars, and consequent misstatements in the financial statements of the company.

And whether the alleged diverted funds have been siphoned off by the promoters and promoter-related entities of the firm, resulting in violations of the provisions of PFUTP rules and LODR (Listing Obligations and Disclosure Requirements) norms. The investigation period was from financial year (FY) 2014-15 to FY 2020-21.

Congress Rahul Gandhi shows a stock market movement chart during a press conference in New Delhi on June 6, 2024.
| Photo Credit: AP

The story so far: The Indian stock market witnessed extreme volatility right after the release of the exit poll results earlier this month and on June 4 when the results of the latest Lok Sabha election were declared. The benchmark indices, the Nifty and the Sensex, have since managed to recover the losses. The Congress alleged that Prime Minister Narendra Modi and Home Minister Amit Shah had manipulated the stock market through their statements to favour certain investors.

What is the controversy about?

The Nifty and the Sensex gained 3.2% and 3.4%, respectively, to hit all-time highs on June 3, the first day of trading after the exit poll results, which were released over the preceding weekend, suggested that the BJP would win a resounding majority in the election. The biggest gainers were stocks of companies that were seen to be close to the government, such as the Adani Group stocks, and stocks of public sector companies which were expected to benefit during Mr. Modi’s third term in power. Both the benchmark indices, however, slumped by almost 6% the very next day after the actual results failed to match exit poll predictions. The decline on June 4, which was the worst single-day fall in the stock market since March 2020 in the wake of the COVID-19 pandemic’s outbreak in India, wiped out investor wealth worth about ₹30 lakh crore. Prior to the exit poll results, the Prime Minister and the Home Minister had made statements encouraging investors to buy stocks before June 4 in order to benefit after the election results.

What is the Opposition’s allegation?

The Congress has alleged that Mr. Modi and Mr. Shah deliberately made comments exhorting retail investors to purchase stocks before the day of the election results and that this was an attempt to manipulate the market to favour certain foreign investors. To back this claim, the party’s data wing head Praveen Chakravarthy has drawn attention to the doubling of the value of stocks traded for cash in the market on May 31, the last trading day before the release of the exit poll results. The total value of stocks traded on May 31 was ₹2.3 lakh crore against ₹1.1 lakh crore the previous day. Mr. Chakravarthy has noted that more than half the buying that happened on May 31 came from foreign investors and further added that foreign investors were largely net sellers prior to May 31, when they suddenly turned net buyers of stocks. According to him, the PM’s statements encouraging investors to buy stocks before June 4 would have benefited these foreign investors who managed to load up on stocks before the exit poll results gave a sharp 3% bump to the stock market on Monday. The Opposition parties claim that these foreign investors had insider information about the exit poll results. They also add that the foreign investors managed to offload their stocks on Monday to retail investors who were not just late to the party but also suffered huge losses on Tuesday. The Opposition parties have called for a joint parliamentary committee (JPC) to probe the matter.

What do the market regulator’s rules say?

The Securities and Exchange Board of India’s Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market (FUTP) Regulations state that “planting false or misleading news which may induce sale or purchase of securities” is illegal. But there are exceptions. Comments on the overall market trend when broadcast to the wider public through mass media such as TV and newspapers, are not considered to be the same as information secretly leaked to certain investors to benefit from a coming market move. If not for such exceptions, it would be impossible for anyone to voice their opinion on the market. So, experts contend that unless, say, an investigation can prove that Mr. Modi acted in collusion with certain investors to boost the market prior to the exit poll results, there is probably nothing illegal about his statement urging investors to buy before June 4.

How has the Centre responded?

Union Minister Piyush Goyal responded to the Opposition’s accusations by arguing that foreign investors actually bought stocks at a high price and sold at a low price while Indian investors deftly used the market’s volatility to sell high and buy low. NSE data appeared to back this contention as it shows the umbrella category of ‘retail investors’ were net sellers of stocks on May 31 and June 3, when the market rose, while they were net buyers of stocks worth ₹21,179 crore on June 4, when the markets crashed. Foreign portfolio investors (FPIs), meanwhile, were net buyers on May 31 and June 3 when the markets went up and were net sellers on the day the markets crashed. Some market experts, however, point to the fact that the NSE’s ‘retail investors’ category includes not just small ordinary retail investors but also non-resident Indians (NRIs), HUFs, individual/proprietorship firms and partnership firm /Limited Liability Partnership (LLP) that encompass the investment vehicles used by ultra high net worth and high net worth individuals. These experts observe that shares worth a net amount of more than ₹21,000 crore were bought by ‘retail investors’ from FPIs and domestic mutual funds and that such heavy buying was unlikely to have been done by small ‘retail investors’ alone.

Further, while FPIs bought stocks worth ₹96,155 crore on May 31, the highest-ever in history, they also sold stocks worth ₹93,977 crore on the same day. In other words, despite the sudden rise in trading activity, foreign investors were not huge net buyers of stocks on May 31. This is, however, not to categorically say that there was no mischievous activity during the day. Data on net purchases or sales may not reflect how individual foreign investors with insider information may have benefited. Further, whether an investor group profited or lost money can also depend on exactly when during a trading session they managed to buy or exit a stock regardless of whether the indices closed higher or lower that day. Only a thorough investigation based on granular data can offer an answer to whether there was manipulation.

The Securities and Exchange Board of India. File
| Photo Credit: Reuters

To enhance operational efficiency and reduce the risk to clients’ securities, markets regulator SEBI on May 5 decided to make the process of direct payout of such securities to the client’s account mandatory.

This will become effective from October 14, the Securities and Exchange Board of India (SEBI) said in a circular. Currently, the clearing corporation credits the pay-out of securities in the pool account of the broker, who then credits the same to the respective client’s demat accounts. Further, a facility of direct delivery to investors was introduced in February 2001.

After extensive deliberations with the stock exchanges, clearing corporations (CCs) and depositories, SEBI has decided that “the securities for pay-out shall be credited directly to the respective client’s demat account by the CCs”.

Moreover, clearing corporations should provide a mechanism for trading member (TM) or clearing members (CM) to identify the unpaid securities and funded stocks under the margin trading facility.

In case of any shortages “arising due to inter se netting of positions between clients” — internal shortages — SEBI suggested TM or CM should handle such shortages through the process of auction. Moreover, in such cases, the brokers should not levy any charges on the client over and above the charges levied by the clearing corporations.

In May 2023, SEBI specified various processes for handling clients’ securities with regard to pay-in and pay-out of securities. This was to protect clients’ securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse.

The story so far: Capital markets regulatorSecurities and Exchange Board of India (SEBI) on May 2 introduced a framework for better administration and supervision of Research Analysts (RAs) and Investment Advisers (IAs). The framework envisages that stock exchanges will form dedicated bodies to administer these two essential functions. This is to help SEBI have a thorough vision about the functioning of both RAs and IAs. The framework introduces criteria and rules about the eligibility and functions, among other things, of the two supervisory bodies, and will come into force on July 25.