Sebi faces tribunal blaze for 'casual approach' in NSE co-location scam probe

The long-winded and controversial saga of the co-location scam had another twist on Monday with the Securities Appellate Tribunal setting aside the Sebi order to disgorge Rs 624 crore against the National Stock Exchange.

Former NSE chief executives and managing directors Ravi Narian and Chaitra Ramkrishna also received major relief when the the marker regulator’s order to disgorge a sizable portion of their salaries was also set aside.

In its order, the SAT bench, comprising Justices Tarun Agarwala and MT Joshi, took Sebi to task and skewered it for failing in the investigation.

“We must observe that when serious allegations were made against a first-level regulator, namely, NSE, Sebi should have been proactive and should have conducted the investigation seriously.” the bench observed. “Sebi had adopted a slow approach and, in fact, was placing a protective cover over NSE's alleged misdeeds. It is only when questions were placed on the floor of the Parliament that Sebi woke up and instituted an investigation. The scope of the investigation was limited.”

The tribunal bench didn't stop at this. “In our opinion, considering the gravity of the alleged charges, Sebi should have itself conducted an investigation/enquiry, instead of delegating it to NSE to conduct an investigation. It is strange and it does not stand to reason as to how Sebi directed NSE to conduct an investigation against itself. It is clear that a casual approach was adopted.”

As if that wasn’t enough of a sounding, the tribunal took the whole-time member of Sebi in its crosshairs. The tribunal bench pointed out that there were “contradictions in the findings arrived at on the same issue” by the WTM, who had passed two orders on the same day, namely, one against Ramkrishna and Narain and the other against OPG Securities.

“We find that there are contradictions in the findings arrived at on the same issue.” the bench said. “For example, on the issue of early login, the WTM, in the order against NSE held that early log-in by trading member (TM) and OPG created an advantage. The WTM held that a TM who logs in first would be disseminated the data first at the start of the trading day and, therefore, has an advantage over other TMs. On the other hand, the WTM, in the OPG matter held that the early log-in by OPG did not make any unfair advantage.”

The SAT flayed the regulator further, pointing out that "this anomaly is one such instance" and there are more. "It is not worthwhile to cull out all the contradictions but it is suffice to state that the same officer who has passed the orders on the same date cannot make different analysis on the same subject/issue,” it said.

Ramkrishna was arrested by the CBI in March 2022, nearly four years after an FIR was registered by the investigative agency in the scam. Both Narain and Ramkrishna were helming the agency when the co-location scam was underway.

While Narain is not under arrest now, Ramkrishna is lodged in jail for another matter that involves illegal phone tapping of NSE employees. The CBI is awaiting permission from the NSE’s board to prosecute Ramkrishna. The investigative agency had sought similar permission from the ICICI Bank board for prosecuting its former MD Chanda Kochhar.

After filing the chargesheet, CBI informed a Delhi court that it was still investigating the case seeking to examine other linkages that might emerge out of the probe.