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3. On March 13, 2014 there was a public announcement carried by Press Trust of India, attributed to CBI, that a Preliminary Enquiry (PE) against Mr. C. B. Bhave, former Chairman, SEBI and K. M. Abraham, ex-Member SEBI has been registered in connection with the granting of license to the new Stock Exchange MCX-SX in September 2008 for trading in currency derivatives. The news of the PE was aired first on all TV Business News Channels and subsequently various Newspapers carried the same also. Shortly thereafter, the Director CBI also publicly confirmedthenews.

4. I was working as Whole Time Member, Securities and Exchange Board of India (SEBI) under Rule 6(2)(i) of the IAS (Cadre) Rules, 1954 from July 21, 2008 to July 20, 2011. SEBI recognized the new MCX-SX Stock Exchange to trade in currency derivatives in September 2008 during theperiodIwasworkinginSEBI.

5. I respectfully submit the following in this regard. The submission is divided into the following sub-topics for easeofreference.

A. Guidance from judicial pronouncements on the status of decision making in a quasi-judicial body like SEBI and related issues

B. Basis and Scope of the powers of the CBI to conduct a Preliminary Enquiry of this nature

C. Reasons for the stand that I have taken in this Preliminary Enquiry on the basis of my personal convictions and approach to my professional work

D. The circumstances and unusual manner in which CBI has registered this Preliminary Enquiry

A. JUDICIAL GUIDANCE ON THE STATUS OF DECISION MAKING IN A QUASI-JUDICIAL BODY LIKE SEBI AND RELATED ISSUES

6. SEBI administers the recognition of Stock Exchanges under the Securities Contracts (Regulations) Act, 1956, the Securities and Exchange Board of India Act, 1992 and the various regulations framed there under. In recognising

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exchanges or in extending their recognition, SEBI exercises its regulatory and quasi-judicial powers conferred on it through Acts of Parliament and the regulations that SEBI itselfframesundertheseActs.

7. At a legal and constitutional level, unwarranted intrusion

by an investigative agency into a regulatory and quasi-judicial body like SEBI which administers the recognition of exchanges under the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992, is ultra vires of judicial pronouncements of the Honourable Supreme Court of India.

8. Preserving the autonomy of SEBI is important to the

financial markets of the country. An investigative agency like CBI cannot be allowed to tamper with this autonomy. The Honourable Union Finance Minister himself endorsed this view when he said in response to questions on the PE that “SEBI is an autonomous regulator. It is entitled to takeaview”.

9. In the legal framework of our country, quasi-judicial

institutions - subordinate to the judiciary - but yet partaking of powers reflecting the judicial nature of the processes, albeit limited in scope limited to only those specific ones conferred through Act(s) of the Legislature, have evolved to become a vital instrumentality of the State. The essential nature of a quasi-judicial institution has been captured by the Honourable Supreme Court in BSNL vs. TRAI in its judgement in Civil Appeal No. 5253 of 2010dated6.12.2013.

“A statutory instrument, such as a rule or regulation, emanates from the exercise of delegated legislative power which is a part of administrative process resembling enactment of law by the legislature whereas a quasi-judicial order comes from adjudication which is also a part of administrative process resembling a judicial decision by a court of law.”

10.The esteem accorded to regulatory bodies by even the

highest court of our land - the Honourable Supreme Court is evident in its words in its judgement in Avishek Goenka vsUnionOfIndia&Anron27April,2012.

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‘It will not be appropriate for this Court to examine these technical aspects, as such matters are better left in the domain of the statutory or expert bodies created for that purpose. The concept of ‘regulatory regime’ has to be understood and applied by the courts, within the framework of law, but not by substituting their own views, for the views of the expert bodies like an appellate court. The regulatory regime is expected to fully regulate and control activities in all spheres to which the particular law relates.’

11. In Clariant International Ltd. & Anr vs Securities &

Exchange Board Of (25 August, 2004), the Honourable Supreme Court, referring to SEBI affirmed that “The Board is indisputably an expert body” and that “when it exercises its quasi judicial functions; its decisions are subject to appeal.” The Honourable Apex Court further emphasised that the “only check upon exercise of such wide ranging power is that it must comply with the ConstitutionandtheAct..”Toquotefromthisjudgement:

“The SEBI Act confers a wide jurisdiction upon the Board. Its duties and functions thereunder, run counter to the doctrine of separation of powers. Integration of power by vesting legislative, executive and judicial powers in the same body, in future, may raise a several public law concerns as the principle of control of one body over the other was the central theme underlying the doctrine of separation of powers.

Our Constitution although does not incorporate the doctrine of separation of powers in its full rigour but it does make horizontal division of powers between the Legislature, Executive and Judiciary. [See Rai Sahib Ram Jawaya Kapur and Others Vs. The State of Punjab, AIR 1955 SC 549].

The Board exercises its legislative power by making regulations, executive power by administering the regulations framed by it and taking action against any entity violating these regulations and judicial power by adjudicating disputes in the implementation thereof. The only check upon exercise of such wide ranging power is that it must comply with the Constitution and the Act.”

12.The opinion of the Honourable Supreme Court in the

matter of admissibility challenge under Article 32 of the Constitution is also instructive in this regard. In Gulabdas v. Assistant Collector of Custom 1957 AIR(SC) 733, 736, the Full Bench of the Honourable Supreme Court held that if the order impugned is made under the provisions of a statue which is intra vires and the order is within the jurisdiction of the authority making it then whether it is

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right or wrong, there is no infraction of the fundamental rights and it has to be challenged in the manner provided in the Statute and not by a petition under Article 32. This position has been re-emphasised in ever somanydecisionsoftheApexCourt.

13. In this instant case, actions that are sought be made the

subject of the Preliminary Enquiry include the procedures adopted in the exercise of powers of a Whole Time Member under the Securities Contracts (Regulation) Act, 1956 or the Securities and Exchange Board of India Act, 1992. These Acts clearly specify the appellate remedies in higher forums. In this instant case, both Securities Appellate Tribunal and the High Courts of our Country are the appellate bodies to which disputes in terms of exercise of the powers under the aforementioned Acts and Rules have to be referred to. Therefore, in any case the procedure adopted by me in the interpretation of the aforementioned Acts, Rules or Regulations framed under them, as a Whole Time Member in SEBI cannot be reviewed by CBI unless it is evident that I am guilty of the transgressions that are offences under the PreventionofCorruptionAct1956.

14.The observations of the Honourable Supreme Court in U.P.

Sales Tax Service Association vs. Taxation Bar Association, Agra&others(1996AIR98)areverypertinent:

“It is fundamental that if rule of law is to have any meaning and content, the authority of thecourt or a statutory authority and the confidence of the public in them should not be allowed to be shaken, diluted or undermined.”

In the same judgement, the Honourable Supreme Court observedfurther:

“The judicial officer/authority needs protection personally. Therefore, making wild allegations of corruption against the presiding officer amounts to scandalising the court/statutory authority. Imputation of motives of corruption to the judicial officer/authority by any person or group of persons is a serious inroad into the efficacy of judicial process and threat to judicial independence and needs to be dealt with strong arm of law.”

15.The importance of upholding the sanctity of a

quasi-judicial authority is what resonates powerfully in

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the judgement of the Honourable Supreme Court in Harish Uppal (Ex-Captain) vs. Union Of India and Another (WP(C) 132/2008 - dated 17.12.2002 even though the judgement itself was in the context of judicial review of orders when itaffirmedthat:

“The protection to the judges/judicial officer/authority is not personal but accorded to protect the institution of the judiciary from undermining the public confidence in the efficacy of judicial process. The protection, therefore, is for fearless curial process. Any scurrilous, offensive, intimidatory or malicious attack on the judicial officer/authority beyond condonable limits, amounts to scandalising the court/tribunal amenable to not only conviction for its contempt but also liable to libel or defamation and damages personally or group libel. Maintenance of dignity of the court/judicial officer of quasi- judicial authority is, therefore, one of the cardinal principles of rule of law embedded in judicial review.” (Emphasis supplied)

16. In short, the PE registered by CBI runs counter to and

flouts the dictums and guidance laid down by the Honourable Supreme Court in its various judicial pronouncements.

B. BASIS AND SCOPE OF THE POWERS OF THE CBI TO CONDUCT A PRELIMINARY ENQUIRY OF THIS NATURE

17. The Preliminary Enquiry registered, as seen from the actual statements of the CBI Director and the statements attributed to officers in CBI (which have neither been refuted nor denied so far by anyone in CBI), relates to the granting of recognition by SEBI in 2008 to a new stock exchange and subsequent extensions of this recognition. Furthermore, at this time, some officers from SEBI and those who had worked in SEBI earlier have already been summoned for questioning by CBI. From what I have been able to gather, the questions posed to them by CBI relate to the decision-making process itself that preceded such recognition and subsequent extensions to MCX-SX Stock Exchange.

18. The power of CBI to conduct a Preliminary Enquiry against me derives its legal basis from notifications issued under Section 3 of the Delhi Special Police Establishment Act, 1946. Specifically, the power of CBI to conduct this

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preliminary enquiry springs from the fact the CBI has been entrusted with the powers to investigate any offence that I might have committed under the Prevention of Corruption Act,1988(PCAct).

19. Needless to say, CBI has every right to probe into

whether as a public servant I have taken gratification other than legal remuneration in respect of any official act that I might have done (Section 7 of the PC Act) and/or if I have taken gratification, in order, by corrupt or illegal means, to influence any public servant (Section 8 of the PC Act) and/or if I have taken gratification, for exercise of personal influence with public servant (Section 9 of the PC Act) and/or if I am guilty of criminal misconduct in my capacity as a public servant (Section 13 of the PC Act) and/or if I haveabettedanyoftheaboveoffences.

20. Section 13 of the PC Act makes it very clear that the

‘decision’ or ‘decisions’ of the public servant investigated should have secured for himself one or more of the following:

(a) Gratification other than legal remuneration or (b) a valuable thing for no or inadequate consideration or (c)somepropertysecuredbymisappropriation

OR secured for himself or any other person one or moreofthefollowing:

(a) a valuable thing through corrupt or illegal means or by abusing his position or without any public interest

(b) is in possession of assets disproportionate to income.

21. Therefore, the ‘decision’ or ‘decisions’ that are the

subject of any preliminary enquiry has to be definite and precisely be those that clearly contain at least one of the following:

A. An unfair pecuniary advantage to the decisionmaker

B. IllegalgratificationtothedecisionmakerC. Assets disproportionate to the income of the

decisionmaker

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D. Valuable thing secured for the decision maker or any other person with the corruptionorillegalityclearlyevident

E. Valuable thing secured for the decision maker or any other person through clear abuseofthedecisionmaker’sposition

F. Valuable thing secured for the decision maker or any other person where it should be clear that no public interest was served and why it is argued that no public interest wasserved.

22. Any enquiry, preliminary or otherwise about a public

servant has to originate from at least one ‘decision’ characterized by one or more of the above ingredients. This has to be the fulcrum of any enquiry by CBI. In short, not all decisions of a public servant or least of all, of a quasi-judicial authority can be the subject of enquiry by CBI. Such decisions, which specifically satisfy the ingredients of the PC Act alone, can come under the purview of any CBI enquiry. The CBI cannot arbitrarily wander into the realm of ‘decision making’ of the public servant or quasi-judicial authority itself unless there is at least one ‘decision’ of that public servant, that is characterized clearly and unequivocally as defined under therelevantsectionsinthePCAct.

23. The ‘decision(s)’ enquired into should not simply be

just a suspected construct created by imagination, but it should be real and characterized by the ingredients outlined in the relevant sections. In other words, the CBI does not enjoy any power to analyse the ‘decision making’ itself to search for a ‘decision’ which contains the ingredients that will be an offence under the PC Act. The enquiry itself will have to be necessarily framed around one or more decisions that satisfy the necessary ingredients of the relevant provisions of the PC Act. The starting point of any such enquiry therefore has got to be a ‘decision’ and that too of this defined nature and not the ‘decision-making’ itself. The gravamen of the ground for enquiry cannot be left vaguely outside the above scope. Neither can it be left suspended in a state of animated

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anticipation that some rationale for the enquiry will emergeatsometimeduringtheenquiryitself.

24. In Jagdish Mandal v. State of Orissa and others, (2007)

14 SCC 517 the Honourable Supreme Court laid down that “ Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides.” But even the Honourable Apex Court restrains this power granted to the judiciary, when it further enunciates that the purpose of judicial review “is to check whether choice or decision is made "lawfully" and not

to check whether choice or decision is "sound".” If this is

the opinion of the Honourable Supreme Court as regards even mere administrative action, how much more strictly should the same principle apply to decision making in quasi-judicial bodies. Needless to say, therefore, such a power of general review on decision-making in a quasi-judicial body or by a public servant given only to statutory and judicial bodies, cannot be exercised by CBI andwouldbeultravires.

25. In Amrik Singh Lyallpuri vs Union Of India & Ors (dated

21 April, 2011), the Honourable Apex Court on the basis of a Constitution Bench decision of this Court inL. Chandra Kumar v. Union of India13 and others, AIR 1997 SC 1125 observed that “Such a finding of this Court, obviously means that there cannot be an administrative review of a decision taken by a judicial or a quasi judicial authority which has

thetrappingsofacourt.”

26. Therefore, prima facie, this PE instituted around

decision making in SEBI done in connection with the recognition and subsequent extensions of SEBI, is ultra vires of the powers of the CBI and encroaches into the powers of review given only to statutory and judicialbodies.

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C. REASONS FOR THE STAND THAT I HAVE TAKEN IN THIS PRELIMINARY ENQUIRY ON THE BASIS OF MY PERSONAL CONVICTIONS AND APPROACH TO MY PROFESSIONAL WORK

27. In my tenure as Whole Time Member in SEBI, I have issued a few hundred quasi-judicial orders and processed several files that deal with the interpretation of various Acts, Rules and Regulations. I have always felt a genuine sense of pride, that in many ways my work as a quasi-judicial officer bears some resemblance to what a judge does - though, needless to say, much more modest in scope, scale and import - whether it be in the august echelons in the Honourable Supreme Court of India down to the smallest Munsif Court in our country. I have been humbly conscious of the great responsibility that I carry andthedignityandstatusitconfersonme.

28. Every time I have set foot on the podium in the small Hearing Room on the ground floor of the SEBI Headquarters in Mumbai, to preside over hearings and dispose of quasi-judicial matters, I have whispered a prayer to myself, that the Almighty may grant to me the sagacity, insight and professional knowledge to write orders that are lucid and cogent, that all my decisions will stand up to close scrutiny and that my conduct in and outsidetheHearingRoomwillalwaysbeirreproachable.

29. It is my solemn duty to preserve the dignity and sacrosanct character of a quasi-judicial authority of which I was a part. It would be ultra vires on the part of CBI to assume the role of a reviewing authority and review why and how the Securities Contracts (Regulation) Act, 1956 and the Regulations framed under it were administered, how the files relating to this were processed and the manner in which the quasi-judicial and regulatory authority vested in me as a Member were exercised while dealing with issues in SEBI. This would also be in violation of the principles laid down by the Honourable Supreme Court in various judicial pronouncements, some of which havebeencitedabove.

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30. Therefore, as a matter of principle, on legal and personal grounds cited above, as a former Member of a quasi-judicial and regulatory authority established by an Act of Parliament, I plead inability to respond to any questions of CBI that do not have a direct bearing on an offence imputable to me under the Prevention of Corruption Act, 1988. Such offence that I am suspected to have committed should have at its core one or more well-defined decisions that contain any of the ingredients detailed under the relevant sections of the PC Act. Unless the decisions(s) of mine that are under scrutiny and how they satisfy the ingredients specified in the relevant provisions in the PC Act is clearly explained to me, I shall humbly desist from responding to any other question that CBImightliketoputtome.

31. I reiterate, in all humility, that should there be any explicit questions or references to the effect that there has been malafide on my part in the discharge of my duties, or that I have received any illegal gratification or committed an offence under the Prevention of Corruption Act, 1988, I shall most faithfully answer them. However, such questions should clearly focus on decisions that contain at its core clearly defined ingredients of the offences identified in the PC Act and the same should be explained tomeclearly.

D: THE CIRCUMSTANCES AND UNUSUAL MANNER IN WHICH CBI HAS REGISTERED THIS PRELIMINARY ENQUIRY

32. Apart from my stand in this matter that I have explained above, I would also like to use this opportunity to place on record my deep anguish and strong misgivings about the way CBI has registered the PE and divulged informationonthesametothePressandTVmedia.

i. On the evening of March 13, 2014, I received a

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message from a Press Trust of India Representative, that CBI had conveyed information of a PE against Mr. Bhave and me and wanted my response. The news of the PE was soon aired on several TV channels by the sameevening.

ii. On 3rd April 2014, a news reporter called me to seek my responses, as CBI sources in New Delhi had conveyed to him that in the probe it was discovered that a certain decision in SEBI while granting the recognition to MCX-SX Stock Exchange, the file ‘passed through twenty hands on one day’ and that there was “undue haste” in the process. This too promptly appeared in the Media as reported by a CBI official, with the usual disclaimer that the officer had conveyedthis“requesting not to be quoted”!

iii. There have been several similar news items in the printed media on the Preliminary Enquiry attributed to either ‘sources’ in CBI or ‘senior officers in CBI speaking on condition of anonymity’ which have never beendeniedbyCBI.

iv. The CBI Manual specifically provides that all complaints shall be confidential (Paragraph 8.1 of the Manual). The CBI Manual attaches great importance to maintaining confidentiality of the registration of the PE itself. By disclosing information about the PE, directly or indirectly, CBI has contravened the principle of confidentiality laid down explicitly in its ownManual.

v. Annexure 9A of the CBI Manual provides that “Copies of the PE Registration Report should be sent by the Branch immediately after registration to the following, in confidential covers addressed by name”. In fact, the list of persons to whom the PE has to be sent is specified in this Annexure. In other words, there is a well defined but restricted list of persons who can possibly be privy to the PE Registration itself. But yet, CBI, did not safeguard the secrecy of the PE against me andMr.Bhave.

vi. The importance that CBI attaches to maintaining

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secrecy of the enquiries against officials is best reflected in the following comment by Sri. Joginder Singh, former Director of CBI (in the Economic Times

Newspaper(availableonline)onMarch21,2014)

“Joginder Singh, another former CBI director, said publicising a PE could adversely affect a person's reputation. "A PE is discreet in nature. There is a difference between a regular case (FIR) and a PE...an FIR goes to a court and is a prima facie case against someone, but a PE is essentially only an initial suspicion. People have reputations and hence a PE should not be given publicity... What happened (in this matter) could have been avoided," he said.”

vii. However, Mr. Ranjit Sinha, the present Director of CBI, himself appears very casual and nonchalant about the leakage. In a statement of his, that was carried by the media, he reportedly says that, there have been no arrests or raids after all, and “what is there to be so agitated about?” In his reported conversation with Mr. D. R. Karthikeyan, a former Director of CBI himself, (in the Economic Times Newspaper (available online) on March 21,

2014) his comments (not denied till date) are to say the least, insensitive and outrageous, given that CBI is toying with the dignity and reputation of people who have toiled hard their entire career to preserve purity intheirpubliclife.

"I spoke to CBI Director Ranjit Sinha, asking him why the information was made public. He told me 'Nothing remains a secret these days'. ….said former CBI director DR Karthikeyan. (Emphasis supplied)

A remark like this on difficulty to maintain secrecy in a public office, were it to come from some junior official in a typical Government department in our country could have arguably merited some indulgence as being banally flippant at worst - but here we have the Director himself of the highest investigative agency in India - CBI - publicly confessing his inability to keep secretsinhisorganization.

viii. A news item that appeared in Business Today on March27,2014isalsopertinentinthisregard.

With top ministers, businessmen and former bureaucrats coming out strongly in support of former Securities and Exchange Board of India (Sebi) chairman C.B. Bhave after the

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Central Bureau of Investigation (CBI) recently registered a Preliminary Enquiry (PE) against him, ex-whole time Sebi director K.M. Abraham and others for alleged irregularities in granting licence to MCX Stock Exchange (MCX-SX) in 2008, the investigative agency broke its silence to MAIL TODAY on Wednesday.

Since the general sentiment was to the effect that a probe against such 'upright' public officers would further vitiate decision making, CBI director Ranjit Sinha said: "Thousands of crores of investor money have been swindled by MCX and it was incumbent on the agency to look at the very procedure of registration of MCX." (Emphasis supplied)

ix. What happened in the National Spot Exchange (NSEL) is a financial fraud of colossal proportions. The estimates that appear in the media indicate that over 13000 investors might have been defrauded of Rs.5600 crores. But, there has been no complaint so far that any investor has lost money either in MCX-SX orMCXonaccountoftheNSELscam.

x. However, the CBI Director believes that thousands of crores of investor money have been swindled by MCX and that it was therefore necessary to look at the very procedure of registration of MCX. Clearly, what he is expressly stating is that Mr. Bhave and I have failed in ourdutiesintheregistrationofMCX.

xi. In India, Commodities markets are regulated by the Forward Markets Commission (FMC) (formerly under the Ministry of Consumer Affairs and) now under the Ministry of Finance. Securities markets are regulated by SEBI. The National Spot Exchange Ltd (NSEL) is a commodities exchange which was licensed by the Ministry of Consumer Affairs in 2007. The Forward Markets Commission was made a designated agency to regulate NSEL only on February 6, 2012. At no time, has NSEL been under the regulatory purview of SEBI.

Mr. Ranjit Sinha’s statement is either the reflection of an appallingly poor understanding of elementary facts or is a misguided attempt to confusethepublic.

But in fact, it is hard to believe that Mr. Sinha - a

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person occupying the position of CBI Director, - who on record has said that he believes that there is ‘credible information’ to register the PE - does not know that MCX is under the regulatory purview of the Forward Markets Commission and not SEBI, of whose Chairman and Member, Mr. BhaveandIrespectivelywere.

Further, it is still harder to believe that Mr. Sinha actually thinks that the NSEL scam, in which investors were swindled of thousands of crores, is related to the issue on which this PE has been registered.

In such a context, the statement of the Director CBI that he has credible information that substantiates the registrationofthePEbecomesallthemoreintriguing.

xii. The statement of the CBI Director that he has credible information has to be juxtaposed alongside a very devious by-product of the leakage of the news from CBI, one that is far more insidious in its implications.

In the public mind, a serious doubt has been induced, particularly after the CBI Director himself made the statement referred to above, that the NSEL scam had something to do with the recognition given by SEBI MCX-SX to operate as a stock exchange restricted to trading in currency derivatives alone. The deliberate and conscious coupling of the two issues viz. the NSEL scam being investigated by CBI and the PE registered by it against Mr. Bhave and me, prima facie appears to be a carefully contrived artifice to help the perpetratorsoftheNSELscam.

xiii. Even reasonably well informed citizens of our country would neither have the inclination nor the time to devote to understanding that the ‘paired forward traded naked contracts in commodities’ underlying the NSEL scam and the ‘currency derivatives’ traded on MCX-SX Exchange regulated by SEBI are totally unrelated. Or that Commodities Exchanges and Currency Derivatives Exchanges operate in different markets. Many may not even be aware that

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commodities markets in India are not regulated by SEBIbutbytheFMC.

xiv. From what has been gathered from reliable sources, the tenor of the CBI inquiry so far, has been to raise questions that, to say the least, are not only superficial but also a gross affront to a regulatory body like SEBI. Icitetwoinstancesforillustration:

(1) For instance, one question, apparently has been, as to why I had issued an order on September 23, 2010 that the promoters of MCX-SX were not ‘fit and proper’ to run a stock exchange, but yet I had renewed the MCX-SX just a few days prior to that. In fact, in the aforesaid order,Ihadstatedasfollows(inPara89):

“89. In the Notice, the charge has been raised that the above actions do not make the Applicant ‘fit and proper’. The issue before me is not to determine whether the Applicant is fit and proper to function as a recognised stock exchange. But, I am of the considered opinion that the Applicant has failed to adhere to fair and reasonable standards of honesty that should be expected of a Stock Exchange.”

Thus while the Show Cause Notice to MCX-SX and its promoters did raise this issue of whether MCX-SX was ‘fit and proper’, the finding in my order was that MCX-SX had failed to adhere to fair and reasonable standards of honesty that should be expected of a Stock Exchange. In other words, MCX-SX or its promoters had not as yet beendeclarednot‘fitandproper’byme.

It should have also been plainly evident from the records of the extension of recognition to MCX-SX on September 13, 2010, ten days prior to my order on September 23, 2010, that this extension was granted subject to the final disposal of the case pursuant to the direction fromMumbaiHighCourttoSEBI.

It is another matter indeed that had MCX-SX not filed an appeal in the Mumbai High Court in October 2010 against the order dated September 23, 2010 issued by me, SEBI would have had to

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take a view on whether MCX-SX should be allowed to operate as a stock exchange for anotherterm.

Furthermore, it would not need too much of an imagination or professional knowledge to understand that SEBI cannot, one fine day, bring any stock exchange to a grinding halt and crash a market jeopardising the security of the wealth of several lakhs of investors but has to go through a delicateandwell-thoughtoutprocesstodoso. 1

(2) Another issue, apparently raised by CBI was why recognition to MCX-SX to operate as a Stock Exchange was granted within 24 hours from date of its application and why about twenty officers of SEBI had signed the file on a single day. It would have been difficult to to miss the fact in the file, that in reality the application for MCX-SX was received by SEBI on July 21, 2008 and the recognition was given to them on September 23, 2008.

xv. A few eminent persons in public life have expressed the view that the preliminary enquiry against Mr. Bhave and me may be part of a conspiracy. Whether there was any such conspiracy is a matter that can only be established through a detailed enquiry. However, the facts brought out here unequivocally show that there are far too many unusual, suspicious andpeculiarcircumstancessurroundingthisPE.

1. Firstly, what appears very suspicious is the timing of the release of the leak on the PE from CBI. The news of PE was leaked to the press on March 13, 2014. This was the very same day when CBI conducted the raid on the promoters of NSEL as part of their enquiry into the NSEL scam. The media practically went viral with the news leaked about the PE against Mr. Bhave and me. Somewhere in this whole melee, the investigation against the NSEL

1 SEBI’s own EXIT POLICY for defunct stock exchanges is a case in point - not to speak of a l ive and running stock exchange!

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promoters and the NSEL scam was relegated as somethingofsecondaryimportance.

An analysis of the media coverage on the NSEL scam is quite instructive. After March 13, 2014 – the day on which the news of the PE was leaked from CBI - the investigation into the NSEL scam has yielded place almost completely in media coverage to the PE against Mr. Bhave and me! In short, the leakage of news of the PE comes as a handy shroud and useful distraction and a good public smokescreen for the perpetratorsoftheNSELscam.

2. Secondly, after Mr. Bhave and I left SEBI, there were several regulatory permissions and orders from SEBI between 2011 and 2014 (which I have not detailed here) that were issued to MCX-SX and directly or indirectly linked to the promoters, viz. MCX, FTIL, Mr. Jignesh Shah directly. Many of them had far more regulatory implications and carried much greater risks to the markets. In an order of SEBI dated September 23, 2010, disposing of an application from MCX-SX for applying for permission to run a full-fledged exchange, I had rejected its application having inter alia, found that MCX-SX “has not adhered to fair and reasonable standards of honesty that should be expectedofarecognizedStockExchange”.

In July 2012, SEBI permitted MCX-SX to operate a full-fledged exchange. Thereafter, SEBI accorded extension of recognition twice to it, in September 2012 and September2013.

One of the promoters of MCX-SX viz. FTIL and those connected to it has since been found not ‘fit and proper’ by the Forward Markets Commission.

As part of the investigation into the NSEL scam, FMC had authorised PwC to conduct a special

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audit. The specific terms of reference were to identify related parties of MCX and FTIL and review non-trading transactions between MCX and related parties between April 1, 2002 and September 30, 2013. The special audit report, apparently has found that the two erstwhile promoters of MCX-SX, viz. FTIL and MCX has violated legal provisions of corporate law and taxation. Furthermore the same report apparently indicts FTIL of indulging in "wash trades" that were part of the transactions that related parties conducted on MCX over the yearsinviolationofregulatorynorms.

One of the promoters has also been now declared by SEBI itself as not ‘fit and proper’ to

holdsharesinaStockExchange!

It is now reported that the income tax department is looking into deals between MCX-SX Stock Exchange and its erstwhile promoterFTIL.

Curiously, CBI did not select for its enquiry any of the permissions and sanctions that SEBI gave to MCX-SX after Mr. Bhave and I left SEBI. But CBI narrowed down on the permission given by SEBI to MCX-SX for operating in Currency Derivatives when Mr. Bhave was the Chairman and I was a Member nearly six years ago in 2008 as the subject of thePE.

3. Thirdly, as briefly explained above, the level of superficiality of the issues apparently being raised by CBI in this enquiry, ignoring even obvious facts plainly evident in the records, is baffling, to say the least. Unless, there has been a premeditated design by someone to get this PE registered against Mr. Bhave and me, it would be difficult to believe that such issues would have ever become a subject for any preliminary enquiry by a

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professionalinvestigatingagencylikeCBI.

4. Fourthly, the current SEBI Chairman has gone on record as early as in November 2013 that MCX-SX stock exchange is ring-fenced from other group firms and that it will not be affected by the NSEL crisis. To quote the current SEBI Chairman:

“I would like to clarify that the promoters of these companies (MCX and the crisis-hit spot exchange NSEL) are also promoters of a stock exchange (MCX-SX) that we regulate. But, I would like to assure you that we are conscious that the entity we regulate is thoroughly ring-fenced”. (Emphasis supplied)

What the SEBI Chairman is underscoring here is that there the MCX-SX is fully insulated from whatever happened in the NSEL scam. That being so, why did the CBI Director link the MCX-SX Registration to the NSEL scam and in the process drag in Mr. Bhave’s and my name into it, despite SEBI itself taking the position that MCX-SX is not in the least, affected by the NSELscam.

5. Fifthly: On June 23, 2011, I had in my capacity as Whole Time Member of SEBI issued the order against Sahara India Real Estate Corporation and Sahara Housing Investment Corporation, directing them to pay Rs.24000 crores with interest to the investors who had subscribed in the Optionally Fully Convertible Debentures issued by the Sahara Group. After a long legal battle, the Honourable Supreme Court on March 4, 2014 ordered that Mr. Subrata Roy and others be kept under judicial custody for failure to comply with the directions to pay the amount. The registration of the PE and its announcement by CBI in the public domain came on March 13, 2014 exactly nine days after Mr. Subrata Roy was confined to judicial custody. All newspapers that referred to the PE against me in their articles, also specifically referred to my order in the

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Saharacase.

xvi. Mr. Bhave is highly regarded nationally for his exemplary integrity and professionalism. His illustrious and spotlessly clean record has earned him a place as Trustee in the IFRS Foundation responsible for the governance and oversight of the International Accounting Standards Board. I myself have a track record of unblemished service of 32 years in the civil service. The PE has very artfully and deviously resulted in linking our names to the NSEL scam and to MCX, FTIL and NSEL, which are institutions in the line offireintheenquiryintheNSELscam.

xvii. Only time will tell whether Mr. Bhave and I are being used as human shields for the guilty in the NSEL fraud, to escape. Or, whether our reputations are being used as a veneer to give a semblance of respectability to those criminally guilty in the NSEL scam till at least the time they are hopefully convicted! Or whether the whole PE itself has originated from the vile design of any of the many powerful entities who were adversely affected by regulatory actions of SEBI taken by me in mycapacityasWholeTimeMember.

But then, in the absence of an enquiry by an independent agency, the real reasons for this PE, might never ever cometolight.

Summary

33. I have tried above to bring out the legal and personal

reasons why I believe that it will be wrong on my part as a

former Member of SEBI to respond to questions of CBI that

fall out of its own investigative purview and reach out into

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the regulatory role of a quasi-judicial authority like SEBI. I

haveexplainedabovethatthePEis:

A. ultra vires of the scope of the powers of CBI

itselftoregisteraPEofthisnature,and

B. contravenes the guidance and dictums laid

down by the Honourable Supreme Court on the

status and scope of decision making by

quasi-judicialbodies.

34. In taking the stand before CBI that I shall not aid the

violation of the dignity of a regulatory and quasi-judicial

body like SEBI by responding to questions that breach the

safeguards afforded to a such an authority, I am conscious

that it might be perceived that I have defied the authority

of a very powerful instrument of the State viz. the CBI. As

a senior civil servant with over three decades of public

service, I am aware that the law of our land does not brook

any such defiance on my part. I would like to merely

humbly submit that my stand is not intended to be an act

of defiance but is merely one that springs from my

conviction deep within - amply buttressed by sound

principles laid down in law and by the Apex Court of our

countryitself-thatIhavetostandupforwhatIbelievein.

35. In not responding to questions that are not related to

the offences named in the Prevention of Corruption Act

which satisfy the ingredients laid down therein in the

relevant provisions, and are on how I exercised my powers

as a member of a regulatory and quasi-judicial body like

SEBI, I am conscious that it might cause prejudice to me.

But a defence of my decisions - which were quasi-judicial

in nature or were part of my work as a regulator - obtained

at the cost of violating the integrity and dignity of a

regulatory authority like SEBI, is no honourable defence.

Therefore, notwithstanding the risks to me that my stand

might entail - as a former Member of a regulatory and

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quasi-judicial body like SEBI - I believe it is my sacrosanct

duty to affirm my belief, in my own diminutive way, that

the desecration that is being committed on SEBI through

thisPEisbad,bothlegallyandmorally.

36. This PE registered by CBI against a former Chairman

and Member does not bode well for a Regulator like SEBI.

SEBI has been singularly fortunate in having built up a

cadre of bright officers generally known for their

professionalism and integrity. Gradually, this PE will only

let a deep and morbid fear permeate into these officers

that will, over time, sap the marrow out them. Some of

them will now begin to worry, that the number of times

they sign on a particular file in a day could somewhere in

the future, become a matter of interest for CBI! Some of

them could be even sufficiently unnerved to think that it

would be in their interest to slow down processing of

regulatory applications for licenses and approvals

submitted by various stakeholders in the market, to

convey an impression that they indeed had applied their

mind thoroughly on the file. Even after this PE is closed, it

will take a while to exorcise this fear completely and

restore their confidence. Needless to say, all this certainly

does not augur well for an independent and autonomous

FinancialMarketsRegulator.

37. Today, this intrusion of CBI into a regulatory and

quasi-judicial body like SEBI might be a one-off desultory

instance. But soon this aberration might become a

perilous habit. In due course, CBI might feel comfortable

and perhaps even begin to enjoy walking into the office of

any regulatory and quasi-judicial authority wielding a

stick – interpreting the Acts and Rules administered by

that body, in the way CBI deems best. Thereafter, it might

only be just one retrograde step away and a matter of time

when an unbridled CBI becomes brazen enough to

question why a High Court Judge interpreted the law in a

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certain manner on the basis of how CBI appreciates the

Judge’s notes in the Court files. And that would well be the

death knell of constitutionally established democratic

institutions,asweknowthem,inourcountry.

38. In Clariant International Ltd. & anr. vs SEBI (cited

supra), the Honourable Supreme Court, affirmed that SEBI

“is indisputably an expert body” with wide ranging powers

and the “only check upon exercise of such wide ranging

power is that it must comply with the Constitution and the

Act.” Therefore for this reason and the principles

enshrined in various judicial pronouncements, a few of

which have been cited herein, it would be wrong and ultra

vires on the part of CBI to assume the role of a reviewing

authority and review actions of SEBI taken in its role as a

regulator. CBI has not been conferred with any such

power to conduct a roving enquiry into the exercise of the

quasi-judicial and regulatory authority that was invested

in me as a Whole Time Member in SEBI, under the various

Acts,RulesandRegulationsthatSEBIadministers.

39. Therefore, for the reasons, legal and personal explained

above, I once again respectfully plead my inability to

respond to questions that do not have a direct bearing on

whether I have committed an offence under the Prevention

of Corruption Act. Any such imputation of offence should

also be demonstrably anchored in any of my decisions

while in SEBI that clearly satisfy the ingredients of the

relevant provisions of this Act. It cannot be in the nature

of a fishing expedition into the process of my

decision-making itself as member of quasi-judicial

authority like SEBI, to search for decisions in the mere

expectation that some of them might perhaps satisfy any of

the ingredients in the relevant provisions of the aforesaid

Act!