NSE probe turns to unlawful gainers

The Central Bureau of Investigation is set to widen the scope of its probe to include more people based on fresh leads, including some of the past board members of the exchange, said one of the four people cited above. All four declined to be named.

The income tax department, which held searches earlier this month in connection with the case, is trying to nail the ultimate beneficiaries of an alleged information leak from the exchange, said the second person, a tax official. Regulatory action in the case seeks to recover any unjust gains made by individuals or entities, said a third person.

The ministry of corporate affairs (MCA) will, through the Registrar of Companies (RoC), look into any alleged violations of the Companies Act once it gets any reference on the matter from any agency. So far, no agency has made a reference to the ministry in this case, the fourth person said.

The order by the capital markets regulator Securities and Exchange Board of India (Sebi) earlier this month on the alleged governance lapse at the stock exchange between 2013 and 2016 cited violations of the Companies Act on certain instances of executive pay.

In an order on 11 February, Sebi imposed monetary penalties on NSE and five former employees, including managing director Chitra Ramkrishna and group chief operating officer Anand Subramanian, besides restrictions on new product launches by NSE and on market participation by these individuals. The case is about the appointment of Subramanian and the alleged sharing of confidential information of NSE with an unknown person.

A spokesperson for NSE said this Sebi order relates to certain issues at NSE during 2013-16.

In this regard, over the last few years, there have been several changes at the board and management level at NSE, said the spokesperson. Sebi has also instituted various changes in the governance structure of market infrastructure institutions (MIIs), the spokesperson said, adding Sebi has been closely monitoring and supervising the operations of NSE and other MIIs.

“NSE has operationalized the directives of Sebi on various matters over the years and has taken various measures to further strengthen the control environment, including the technology architecture,” said the NSE spokesperson in response to a query.

An email sent to the finance ministry last Wednesday and to CBI on Saturday remained unanswered till press time. There was no response to queries sent to Sebi and to the spokesperson for MCA on Sunday and to messages and phone calls made last week to senior government officials.

Industry executives said that despite the heat around the investigation, it is very hard to establish any unjust enrichment due to the alleged information leak. “If there was any substance in this charge, evidence of it would have been known by now,” said an industry executive, who asked not to be named.

Besides, NSE is not a listed company, and the question of making unlawful gains with access to sensitive information does not arise, said the person. To be sure, the case refers to the past, and the exchange has a different board now.

A fifth government official aware of the development said, “Investigations are on and the law will take its own course.”

According to legal experts, the capital markets regulator has taken appropriate action. “The matter was in Sebi’s knowledge since 2018, and Sebi, in my view, took appropriate action within the framework of law and regulatory empowerment,” said Mukesh Butani, managing partner, BMR Legal.