Over the last decade, one of the biggest challenges of securities regulators has been to sensitise the judiciary to the nuances of capital market regulation. We have seen strange judicial orders from appellate tribunals, the higher judiciary, and sometimes even the capital market regulator. The Securities Appellate Tribunal (SAT) had even taken upon itself to decide whether the stigma for wrongdoing should attach to a person indicted for insider trading. There have been innumerable cases where SAT has slashed monetary penalties to meaninglessness without understanding that punitive financial damages are the only real deterrent to financial crime.

And there have been cases when the Securities and Exchange Board of India (Sebi) thoughtlessly ordered the suspension of Depository Participants (DPs) without worrying about the enormous cost and hardship to investors to switch DP accounts — Sebi did not even think it was its job to facilitate the process. The most recent of such orders comes from the Bureau of Industrial and Financial Reconstruction (BIFR), which provided sweeping freedom for the shares of Dunlop India to be listed. What is worse, BIFR actually ordered Sebi as well as every market intermediary with a regulatory function to facilitate the listing without question, giving a go by to disclosure rules and processes that form the basis of a functioning capital market and proper investor protection.

Consider this: BIFR has allowed the company to make a rights issue of Rs 27 crore in the ratio of six shares for every 10 held, without bothering to seek shareholder approval in a general body meeting. The order permits Dunlop to issue 2.7 crore additional shares and also to enhance its authorised capital to Rs 75 crore from Rs 70 crore. It ‘directs’ stock exchanges of Mumbai, Kolkata, Delhi and Chennai to lift the suspension on trading of Dunlop shares immediately (without going into the basis of their suspension since 2003). It also directs the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) to allot an international securities identification number (ISIN) for the company’s entire share capital to enable trading of the newly allotted shares also in dematerialised form.

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