Mr C.B. Bhave may have retired as SEBI Chairman, but some of the stock market regulator's actions during his time have come back to haunt it.

SEBI finds itself in a situation of having to explain to two authorities the manner in which it dealt with its case against National Securities Depository Ltd in the IPO scam.

It is learnt that Dr Mohan Gopal, who was part of a special two-member committee constituted to look into the regulator's proceedings against NSDL, has written to the Prime Minister and the Finance Minister about how the committee's report was dealt with by SEBI.

The Ministry has asked SEBI for its response, said sources. The regulator also has to answer to the Supremem Court.

Coincidentally or otherwise, an NGO moved the Supreme Court which on February 22 gave SEBI two weeks to explain its rejection of the special committee's report, which had contained adverse remarks about NSDL and SEBI.

The history of this case goes back to SEBI's investigations into the IPO scam of 2003-05 in which scores of operators created fictitious demat accounts to corner shares reserved for the retail segment. Upon listing, these shares were sold at huge profits by the operators.

At the time of the IPO scam, Mr Bhave had been heading NSDL. On his appointment as head of SEBI in 2008, to avoid any conflict of interests, a special two-member committee was constituted to look into SEBI's proceedings against NSDL.

This committee in December 2008 passed three orders containing adverse findings on NSDL in the IPO scam. It also said that NSDL should conduct an enquiry to establish individual liability in the case.

However, the SEBI Board (with Dr Gopal dissenting) appointed three non-whole time members to decide whether the committee had acted within its framework and terms of reference. In August 2009, the Board considered legal opinion and decided that the committee had commented on SEBI's shortcomings, which was outside the confines of delegation and without authority of law.

The Board said these findings vitiated two of the three orders of the committee, which were consequently declared null, void and non-est (non-existent in the eyes of the law). Later the SEBI Board (excluding Mr Bhave) sat afresh on the NSDL case and finally disposed of two of the cases, exonerating the depository.

The NGO, Social Action Forum for Manav Adhikari, had last year filed a case in the Delhi High Court against the manner in which SEBI disposed of its special committee's report, and asked, among other matters, that the SEBI Board decision declaring the committee's report as ‘non-est' be quashed. It also asked for “an investigation regarding various acts committed by Shri C.B. Bhave in his capacity as Chairman SEBI, so as to do undue favours to NSDL.”

The High Court dismissed the Writ Petition and imposed a fine of Rs 50,000 on the petitioner. The petitioner moved the Supreme Court, which has asked SEBI to explain itself in two weeks.

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