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Corporate Nov 12, 2011

Pranab-Chidu feud may be revived over Sebi chief PIL

By R Jagannathan

If you thought that the subterranean tension between Pranab Mukherjee and P Chidambaram is over, you may need to have a rethink.

On Friday, Mukherjee's ministry, through an affidavit filed in response to a public interest litigation (PIL) unconnected with the 2G scam, put Chidambaram in a spot once again.

The PIL, filed earlier this month by a group of retired high-ranked government functionaries - including former CBI Joint Director BR Lall, former Chief of Air Staff S Krishnaswamy, and former Punjab Police chief Julio Ribeiro, questioned the appointment of Sebi chief UK Sinha, and especially the creation of a selection panel that gave too much power to the finance ministry, and possibly done under the influence of corporate interests.

The feud between Pranab and Chidambaram has found new legs.AFP

"There are clear indications that there is a nexus between the ministry of finance and major corporate players and that free and fair functioning of Sebi is no longer possible", said a report in The Times of India quoting former Solicitor-General Gopal Subramaniam, who represented the petitioners. The PIL said the denial of an extension to former Sebi chief CB Bhave was indicative of the ministry's attempts to influence the market regulator.

The substance of the PIL is inextricably linked to a confidential letter dated 1 June written by former Sebi member KM Abraham to the prime minister, in which he had alleged precisely such a nexus. Both Bhave and Abraham were denied extensions that they were entitled to. The report has been accessed by Firstpost through an RTI request with the prime minister's office.

Among other things, Abraham said that Mukherjee's office, and especially his advisor Omita Paul, were trying to influence many cases before Sebi, including those relating to Sahara Group, Reliance, Bank of Rajasthan and MCX.

However, the finance ministry's affidavit goes on the offensive against the PIL, which will have the net effect of putting Chidambaram in the dock.

According to The Economic Times, the finance ministry in 2008 overruled the unanimous choice of a search committee to nominate Sinha for the post of Sebi chief and opted instead for Bhave. The affidavit also points out that Bhave, who was heading the National Securities Depository Ltd (NSDL), had been under scrutiny for his organisation's inability to prevent the primary market scam, where certain individuals had created multiple demat accounts in NSDL to obtain more share allotments in initial public offerings (IPOs).

Translated, the finance ministry affidavit amounts to an indirect criticism of Chidambaram because Bhave could not have been chosen Sebi chief over Sinha against this backdrop. Pranab's ministry is essentially saying that the PIL is wrong because Sinha was anyway due for the job, and it was the intervention of Chidambaram's ministry that handed the job unfairly to Bhave.

The ministry's affidavit blames the PIL's backers for hiding the fact that Bhave was under the scanner for the IPO scam. "It is a matter for consideration as to why the petitioners who, in public interest, espoused the cause of CB Bhave, did not consider it necessary to make any reference to the NSDL controversy and to the various proceedings which have taken place in this behalf."

In fact, the affidavit goes out of its way to paint Bhave- who is widely seen as someone who brought to book many of the big boys of corporate India- as unsuitable for the job. It gave as many as seven reasons for his unsuitability. Reading between the lines, the sum and substance of the ministry's statement is this: we don't know how his name was cleared by Chidambaram.

The Supreme Court bench which is hearing the case includes Chief Justice SH Kapadia, Justice AK Patnaik and Justice Swatanter Kumar. It is going to be a politically-loaded case as the PIL had initially mentioned Pranab Mukherjee as one of its targets, but dropped his name from it on a reprimand from the court.

However, despite the dropping of Mukherjee's name, it is difficult to see how he can be kept out of it entirely since the PIL's movers are likely to bring in KM Abraham's confidential letter to the prime minister which directly puts Mukherjee in the line of fire.

Abraham's letter asked Manmohan Singh to take urgent corrective action since "the regulatory institution (Sebi) is under duress and under severe attack from powerful corporate interests, operating concertedly to undermine Sebi."

He said: "What I see happening now is a calculated assault on the regulatory framework in Sebi. A message is now spreading that cases against the influential and the powerful might put officers in Sebi to undue risk and scrutiny...This will, in no time, incapacitate the investigative machinery in Sebi. Needless to say, it does not bode well for the safety and integrity of the markets and for investors."

Abraham, who was denied an extension by the finance ministry when his term ended on 20 July, has since faced a concerted attack from both the finance ministry and Sinha for his letter to the PMO.

The PIL takes this attack further - taking in not only Abraham, but his former boss Bhave, and, of course, Chidambaram himself indirectly.

Whether the Pranab-Chidambaram war is being ignited because of the former's need to defend himself in the PIL or for some other reason, only Pranab Mukherjee will know the truth.

But one thing is certain. The feud has found new legs.

On 29 September, the current and former finance ministers held a joint press conference and attempted to bury the hatchet in public. The conflict, set off by a finance ministry note of 11 March saying that Chidambaram could have stopped Andimuthu Raja's underpriced spectrum auctions, angered Chidambaram as it seemed to be laying the blame for the 2G scam at his door. At the end of the conference, Chidambaram said: "The matter is closed."

However, these could be Chidambaram's famous last words on it. The 2G trial now underway will not allow the note to be buried. And the PIL involving Sebi chief's selection reopens the feud once again.

by R Jagannathan

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