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Delhi HC issues notice to government, SEBI chief

The Delhi high court today issued showcause notices to the central government and the Securities and Exchange Board of India on a public interest petition challenging the continuance of D R Mehta as chairman of SEBI, despite the expiry of his three-year tenure on February 20 this year.

A division bench consisting of acting Chief Justice Mahinder Narain and Justice S K Mahajan has also sought records regarding the appointment of Mehta as SEBI chief.

The petition was filed by Arun Kumar Aggarwal, who claims to be an expert in financial matters, seeking an order to the cabinet secretary not to reappoint Mehta in view of his failure to protect the interests of investors.

The bench, which also issued a notice to Mehta, directed the respondents to file their replies within 10 days and adjourned the matter to April 20.

The petitioner, through his counsel Prashant Bhushan, urged the court to issue a writ declaring Mehta as holding office illegally, and also prayed for a high-level independent investigation into the working of SEBI.

Bhushan wanted the court to direct the cabinet secretary and SEBI to disclose and make available all the reports, quasi-judicial orders, and documents passed by SEBI.

He contended that Mehta was holding office of SEBI chairman illegally as his tenure had expired on February 20 as per SEBI rules and that he has since been reappointed.

Bhushan disclaimed Mehta's contention that his initial letter of appointment, issued by the government, was for a longer duration and hence overrides SEBI rules. The petitioner argued that the government does not have the authority override the rules approved by Parliament.

Mehta was appointed chairman of SEBI on February 21, 1995.

The petition said the rules relating to the appointment of SEBI chairman had fixed tenure of three years to help assess the functioning of the chairman and ensure that he does not develop vested interests.

Any reappointment has to be based on performance, the petitioner said, and added that Mehta is ineligible in such a case on account of his "questionable" conduct in a large number of cases.

Bhushan claimed that Mehta's act of not disclosing SEBI's reports, quasi-judicial orders, and documents are not only against the objective of SEBI's creation, but also against public interest. There was no reason for withholding the reports and quasi-judicial orders from investors, the very people who these are meant to benefit. Such withholding also violates the fundamental rights of citizens under Article 19(1)(a), claimed Bhushan.

The disclosures of reports and documents cannot be said to have harmed public interest in any manner. In fact, the non-disclosure of such reports and orders had led to a loss of more than Rs 1 trillion by investors in the stock market, non-banking financial companies, and mutual funds in the last few years, the petitioner claimed.

He alleged that Mehta and other SEBI officials are guilty of inaction in a large number of cases where a large mumber of companies were found to have committed serious irregularities. This is clearly a breach of public duty, the very mandate of SEBI.

Agarwal has filed a number of public interest writ petitions. In one of his petitions, the Karnataka high court recently passed an order directing a CBI investigation into the alleged payments by Cogentrix and the China light and Power companies to bag the contract of setting up a 1000-mw power plant in the state.

The Rs 12 billion CRB scam, that surfaced last year and in which small investors had lost Rs 3.9 billion, thoroughly exposes the personal role of Mehta in colluding with the promoter of the company. Mehta, who was on a foreign tour that time, was asked by the finance ministry to curtail his trip. On coming back, the SEBI chief had lashed at his detractors and tried to shift the blame, the petition charged.

The finance ministry had also felt that Mehta's outburst was a pre-emptive move to shift the blame. The finance minister was reported in a section of press to be "not happy" with SEBI for its inability to control the situation.

The finance ministry was also reported to to be opposed to any amendment in the act/rules that would increase the term of the chairman to five years.

The petition alleged that Mehta deliberately hid SEBI's internal reports on the CRB group to promote his hidden agenda of favouring the promoters of various companies.

The petitioner claimed that he had learned from reliable sources that Mehta used his influence with the CBI in having a crucial file of the CRB case closed without even an inquiry.

The petitioner also alleged that Mehta played dubious role in matters relating to Prudential Capital Markets, Reliance, Rajesh Exports, and the Hinduja-promoted IndusInd Bank.

UNI