New Delhi: Close on the heels of news that the former head of India’s largest stock exchange shared confidential information with a Himalayan yogi and took crucial decisions, the country’s premier investigating agency has found more documents highlighting serious violations at the bourse.
The Central Bureau of Investigation (CBI) is looking into documents that say the National Stock Exchange (NSE) received another complaint from a whistleblower in the second quarter of FY22 alleging malpractices and corruption in acquisition of computers and software.
The whistleblower alerted the NSE that it was a single vendor scam, which needed to be probed thoroughly by the bourse. Highly placed sources told this reporter that this acquisition process started as early as 2008-09 and continued till 2019-20.
So what exactly was the complaint? The complaint was towards acquiring the assets from a single vendor without following the standard protocols (SOP-Standard Operating Procedure). On receipt of the letter from the whistleblower, the NSE board decided to carry out a thorough investigation towards the allegations from the whistleblower for the NSE board of directors.
What the CBI is probing is why the NSE management did not describe the assignment as a forensic audit, and whether such a move was to avoid the attention of the regulator and public at large. The investigating agency is also probing as to why the NSE management labelled the assignment as process review for procurement of computers and software.
Highly placed sources further told this reporter that the NSE processed the complaint through their legal department and not the exchange’s audit committee, which was supposed to have ordered the forensic investigation.
The whistleblower said the purchase transactions had taken place when Chitra Ramakrishna was at the helm of affairs, and even after she left the bourse in 2016.
So what happened? The NSE appointed a firm of chartered accountants, Chokshi & Chokshi LLP to carry out the process review for specific transactions worth around Rs 3 crore under process review—claimed the whistleblower—but avoided, for reasons best known to the agency, similar transactions worth around Rs 170 crore.
The entire process, claimed the whistleblower, needed further investigation. Why? Because the stock exchange had acquired similar computers from the same single vendor worth approximately Rs 170 cr in FY 19-20 and 20-21 and still not covered under review of the auditor.
Chokshi & Chokshi is believed to have completed their assignment of process review around August 2021, which found a number of lapses in the nature of irregularities to acquire computers and software from a single vendor. The report, titled Opinion on process review for procurement of computers and software under specific transactions by Choksi & Choksi LLP, was submitted to the NSE on 26 August 2021.
The whistleblower claimed that the auditors found lapses majorly in areas of internal financial controls and under corporate governance by not following protocols as described under SOP of NSE to acquire the assets.
The auditors, claimed the whistleblower, stated clearly in their report about lapses on account of acquiring the assets to the extent of Rs 3 cr, while mentioning disclaimer in areas of acquisition of similar assets from the same single vendor to the extent of another large amount around Rs 170 cr for which they were not asked to report.
The CBI is probing why the NSE Board discussed the forensic auditor report but did not inform the Securities and Exchange Board of India (SEBI), the market regulator. The investigating agency is probing why the market regulator was kept in the dark by the NSE. In normal circumstances, the regulator should have been informed by the bourse of any such serious lapses.
Repeated efforts to reach the legal department of NSE and the auditors met with no response.
This is not all.
Now there are reports that officials of the Income Tax department were probing into the accounts of 11 brokerages and two foreign portfolio investors (FPIs). The tax officials were probing if the brokerage firms and FPIs provided indirect benefits to some board members of NSE in exchange of sensitive information as part of the co-location case. Officials of the I-T and the CBI suspect that these entities used tax havens to purchase assets, fund holidays and invest in some of the businesses of the families of these board members.
Among those probed is Infotech Financials Pvt Ltd (IFPL), which had obtained trading data from NSE for computing the Liquidity Index. It needs to be mentioned here that Sunita Thomas, wife of top NSE official Suprabhat Lala, was one of the directors of Infotech Financials. Thomas was also sister-in-law of Ajay Shah, a top market economist who was associated with the exchange and was instrumental in giving the contract to IFPL, which he later allegedly used for commercial benefit, according to the SEBI’s first report into the co-location matter.
Officials of the I-T department are also probing transactions made by top NSE officials Ravi Varanasi, who was then head of the business development, Deviprasad Singh, head of co-location support; and Nagendra Kumar. SEBI had kept them under watch and accused them for colluding with two brokerages apart from OPG Securities, so as to give them an unfair advantage over the rest of the market.
Tax officials, claimed the Economic Times, are examining the foreign travel data of those named in the NSE co-location case for links to these brokerages and FPIs. “There is a reason for the holidays via Seychelles. Investigation suggests that it was done to mask any link between the parties involved. We are also looking into investments in companies promoted by some of their family members,” the newspaper said.
Delhi-based brokerage OPG Securities is already being investigated by the CBI and other government agencies, along with a host of other brokerages and two FPIs. The investigating agencies are probing the extent of involvement of the other brokerage houses who were named by the SEBI. These names featured in a report prepared by S.K. Mohanty, SEBI whole-time director. Clearly the matter calls for a comprehensive probe, to maintain investor confidence in the Indian market.