A bureaucrat's job is a balancing act. Most Indian Administrative Services officers in high-profile positions are often walking the thin red line on political correctness and the chief of the Securities and Exchange Board of India (Sebi) is no exception.
Upendra Kumar Sinha, Sebi chairman between 2011 and 2017, had a unique style of setting the cat amongst the pigeons. He presided over Sebi at a time when the co-location trading scandal at the National Stock Exchange (NSE) was a raging controversy and the role of his predecessor was conspicuous due to the acts of omission in the commission of duty. Had Sebi under Sinha not acted and ordered investigations, the co-location scandal would have remained buried.
Despite the NSE being a cosy club of retired bureaucrats and its two top bosses calling the shots in New Delhi (https://www.businessworld.in/topics/Delhi-91)'s power circles, Sebi under Sinha managed to order two forensic investigations of NSE's systems that opened the Pandora’s box. On his last day in office in February 2017, Sinha wrote a letter to the NSE board asking them to also get the audit extended to NSE's cash segment. With powerful people backing NSE, the investigations were slow and Sinha can be accused of muted action, yet the credit fully goes to him for setting the ball roiling. Similarly, he also set the ball rolling on investigations into the Adani Group.
Sebi Under Attack
Currently, Sebi is in the eye of a political storm over the closure of its investigations into the alerts generated by the Directorate of Revenue Intelligence (DRI) with regard to the Adani Group, where it was alleged that the conglomerate had sent money outside the country by over-invoicing of bills and the same proceeds was used to manipulate group stocks. But amidst the cacophony and political mudslinging on social media, nobody is paying attention to what exactly happened to the DRI's case and its allegations. Instead, stones are being pelted at Sebi for cowing down to the political pressure in ignoring the alerts sent to it by DRI and closing its investigations against Adani.
What Really Happened
Did Sebi close its case against Adani on the DRI alerts by turning a blind eye? Sebi insiders say that after DRI red-flagged certain transactions involving the Adani Group in 2014 and sent a show cause notice (SCN) to the group in 2015, the same year the regulator actually launched an investigation into the matter. It was Sebi's probe that found that the alleged transactions were routed through the Dubai branch of Bank of Baroda (BoB).
What did Sebi do? It first wrote to BoB in Dubai for more information and when the reply was not forthcoming, it even approached the bank's head office in Mumbai. Sebi also wrote to the Reserve Bank of India (RBI), which was then presided by Governor Raghuram Rajan. Like the Adani Group is perceived to be close to the current ruling dispensation led by Prime Minister Narendra Modi (https://www.businessworld.in/topics/Narendra-Modi-257), Rajan was perceived to be close to the Congress party.
The Real Culprits
Sebi hit a roadblock since RBI, the banking regulator, did not pay heed to the issue and BoB cited legal restrictions that its branch faced in Dubai for its inability to share information with Sebi.
Did Sebi keep quiet after its plea to BoB and RBI went unheard for more information? Sources close to the regulator's office say that before Sinha left Sebi in 2017, the watchdog also wrote to IOSCO (International Organisation of Security Commissions) and sought its help in decoding the Adani transactions. There too, Sebi hit a wall since the information was not forthcoming and IOSCO did not help.
What happened to DRI's case against Adani? Before Sebi could peruse further, in 2017, the adjudicating authority of DRI, the same authority that had issued the SCN, set aside all the allegations and dropped the SCN against the Adani Group.