How U K Sinha became SEBI Chairman?

BY ARUN AGRAWAL

One has to admire this former IAS officer for increasing his annual emoluments from Rs 6 lakh per annum to Rs 2.01 crore per annum (a rise of thirty three times) in less than a year and then to Rs 4 crore. He earned around Rs 10.5 crore in four years as head of UTI Asset Management Company (UTI AMC), while the chief justice of the country earned less than Rs 50 lakh during the same period. And then became the chairman of SEBI.

First the story in brief

Sinha was a joint secretary in the Finance Ministry. He was appointed to the post of Chairman of UTI AMC in violation of government policy and JPC recommendations. He joined the company on deputation for two years, resigned when the government refused to extend his deputation, then used his position in the company to extend his appointment and give himself a salary hike with retrospective effect to include the period under which he was under deputation as a government servant.

After making over Rs 10 crore he was appointed to the post of SEBI chairman. This is a story of how those who have usurped power through questionable means combined to further their cause, irrespective of the colossal damage they do to the institutions. What is tragic is that the lessons of the two securities scams which resulted in setting up of JPC have not been learnt. Just when SEBI was gaining credibility due to its series of orders holding the powerful corporates accountable, it was decided to hand over the chairmanship of SEBI to Sinha.

Details on Sinha

1. As joint secretary, Banking and Insurance, U K Sinha ensured that the chairman of SBI, Bank of Baroda, PNB and LIC (from now on referred as four financial institutions) were indebted to him for either their appointments as chairman or cover up some scam or some favour that they needed from the Finance Ministry.

The above mentioned four financial institutions each owned 25% of the shares of UTI AMC, which manages all the mutual funds of the UTI. They were joint owners of UTI AMC due to the recommendation of the JPC, set up on the collapse of UTI. The JPC had recommended that UTI should no more be owned by the government to dispel the notion that the government would bail it out in case of a future collapse. That is how UTI came to be owned jointly by the four financial institutions under an agreement with the government.

2. Sinha, IAS and joint secretary (Banking), ensured that he was the only choice of the four public financial institutions for the post of UTI AMC chairman in January 2006. The appointment was in gross violation of the crucial policy laid down by the government and endorsed by the JPC which went into the securities fraud of 2002. The extracts from the  JPC report:

“Government has stated that a professional Chairman and Board of Trustees will manage UTI-II and that advertisements for appointment of professional managers will be issued. The Committee recommend that it should be ensured that the selection of the Chairman and professional managers of UTI-II should be done in a transparent manner, whether they are picked up from the public or private sector. If an official from the public sector is selected, in no case should deputation from the parent organisation be allowed and the person chosen should be asked to sever all connections with the previous employer. This is imperative because under no circumstance should there be a public perception that the mutual fund schemes of UTI-II are subject to guarantee by the Government and will be bailed out in case of losses.”

The above text is the last para of the JPC recommendation. It shows that a specific commitment was made by the government and the same was endorsed by the JPC and hence was a policy decision. The final recommendation was a key in context of preventing future scams.

The accepted policy was knowingly violated by Sinha, the four financial institutions, and all others involved in his appointment on three counts and needs to be enquired into.

Sinha was not a professional of the investment industry. In fact he was not even an amateur, given his degree and experience of investment banking. The post was not advertised and Sinha did not sever his connection with his previous employer but joined on deputation.

3. All the erstwhile members on the Board of UTI AMC resigned and a new Board was reconstituted. These members were handpicked by Sinha to do his bidding. Sinha and the new Board took charge from 13/1/2006 with Sinha’s term being limited to two years, ending on 13/1/2008 on account of his deputation from the IAS.

The remuneration of Sinha at the time of appointment till January 2008 was as follows: Basic pay at the rate of Rs. 23,450 per month with effect from April 29, 2006 which is as per the scale advised by the Government of India.

Other perquisites:

• Dearness allowance at the rate of 50% of the basic pay received from the Company

• Dearness pay at the rate of 41% of accumulated amount of basic pay and dearness allowance

• City compensatory allowance at the rate of Rs. 300 per month

• Provident fund equivalent to 10% of basic pay

• Rent free furnished accommodation with free use of all the facilities and amenities, such as air-conditioners, stove, geysers, gas, electricity, water etc. etc etc.

• He will be required to obtain prior permission of the central government before accepting any commercial employment, including directorship of companies, within two years of demitting office on retirement on superannuation, expire of tenure, resignation, or any other reason.

The above disclosures were made in the prospectus filed with SEBI by UTI AMC in January 2008, which shows that till January 2008 there was no increase in salary.  And later he managed to get salary increase effective December 2006. This retrospect revision of salary raises many question as it is timed at almost the same time when the government had refused him extension and asked him to revert to parent cadre in Bihar. Did government refuse extension on salary issue? Or on any other ground? This is not in public domain, but either way it shows impropriety.

4. Within a month of his appointment, on 6/2/06, Sinha set up an HR Committee on remuneration payable to Directors and other key management personnel. This committee deliberately included Sinha, whose salary was fixed at the time of deputation so that he could give himself a handsome hike by camouflaging it as industry related hike.

5. Sinha got his term extended for two years by a Board resolution on 17/9/2007, that is four months before his deputation from the central government was to end. The appointment was made well in advance to enable Sinha to defy the government in case the latter did not extend his deputation. The correct order was to appoint him only if the deputation was extended. The Board members and the four financial institutions were once again guilty of not adhering to the government policy of hiring a professional through an advertisement. This condition was further breached for a third time when Sinha was given a further extension.

6. Sinha approached the central government for extension of his deputation. The PMO put its foot down, denied him the extension as he had been on deputation for more than seven years and asked him to go back to his parent cadre..

7. Sinha, armed with the board resolution extending his appointment for a further two year term, defied the PMO and resigned. Obviously he had the support of the Finance Ministry in his defiance of the government as he had invested in the right people in the right place.

One of the conditions of his deputation from the IAS was that he would not take up directorship or commercial employment for two years after resignation without government permission. The moment Sinha resigned, the clause kicked in because he was now in a commercial employment.

And yet when Sinha took advantage of being clever enough of having extended his appointment through a Board resolution and later on defying the government by resigning when his deputation was not extended, one wonders why the government did not take any action and allowed him to continue?

One also wonders if the IAS officers have to give advance notice at the time of resigning and if so did Sinha gave notice or the same was waived? But what takes the cake is that Sinha could squat on a government controlled organization, treat it as his personal fiefdom and the government remained helpless!

8. After resigning from the civil service and getting his term extended through a Board resolution, Sinha got the new salary structure recommended by the Committee on remuneration set up in February 2006. Not surprisingly, Sinha got a hike from Rs 6 lakh per annum to over Rs 2 crore per annum with retrospective effect from December 27, 2006.

This retrospect revision of salary raises many questions as it was timed at almost the same time when the government had refused him extension and asked him to return to his parent cadre in Bihar. Did the government refuse his extension on the issue of his salary or some other ground? Either way it shows gross impropriety and the profit made by Sinha during the period of deputation needs to be disgorged.

It appears that the members of the remuneration committee were blissfully unaware of the JPC recommendation on UTI or the government policy. More importantly, it appears that they did not know that the pay of Sinha was fixed while he was sent on deputation. They did not even know the pay parity between other IAS officers and Sinha. They were also not aware of the salaries of the chairman of SBI, PNB and BOB, or the CEO of the AMC promoted by SBI, BOB, PNB and LIC.

The fact that the HR Committee on remuneration deliberately did not submit its report for two years that Sinha was on deputation — so that the government would not come to know of the hike in salary to crores and disallow it — shows that there was collusion in the fraud committed on the company.

That Sinha could defy the PMO, retain the chairmanship of the PSU and increase his salary to Rs 2 crore even for the period for which he was on deputation and for subsequent years needs to be admired and is worthy of national recognition for being the most clever bureaucrat that the country has ever known.

Sinha also ensured that all information about UTI AMC is not covered under the RTI Act by appealing against the decision of Central Information Commission to the Mumbai High Court in September 2008 so that the details of his scandal would not come into public domain.

That fact of the matter is that government has full control over ownership of UTI AMC as per share sale agreement. It was owned by four PSUs and CIC held that it was covered under the RTI Act. It is therefore not surprising that at SEBI Sinha professes transparency and then denies information under RTI on the investigative report on the Rs 513 crore Reliance Petroleum trading scam.

His emoluments for three months of financial year 06-07 is Rs 44 lakh, for 07-08 Rs 2.12 crore, for  08-09 Rs 2.15 crore, for 09-10 Rs 2.36 crore, and for 10-11 Rs 3.62 crores (upto 13/1/11). There is no disclosure in annual report as to how his salary of Rs 2.36 crore in 09-10 became Rs 3.62 crore in 10-11 (10 months only). Was it inflation adjustment or performance bonus for UTI having slipped from number one spot to fourth spot?

Sinha was paid Rs 10 cores 69 lakh for less than 50 months whereas the Chief Justice of India got less than Rs 50 lakh in the same period (the salary of CJI was increased from Rs 33000/per month to Rs 1 lakh/per month in Feb 2009). The above figures have been sourced from the balance sheet of the company.

If Sinha failed to comply with a major requirement of a scam affected organization then should he have been considered to be appointed as SEBI chairman? What then was the reason for the appointment of Sinha as chairman of SEBI given his above mentioned manipulations which were definitely in the knowledge of the Finance Ministry?

• Was the emolument of Rs 3.6 crore the reason for his appointment to the post of SEBI chairman?

• Was it because by removing him from the post and rewarding him with the chairmanship of SEBI, Jitesh Khosla, brother of Omita Paul could be appointed to the post of chairman UTI AMC so that he too could earn the same salary?

• Or was it because the Reliance Scam of Rs 2000 crore on account of trading fraud had to be settled for less than fifty crore after his appointment?

• Or was it because of the Sahara scam of Rs 27,000 crore?

• Or was it because the takeover code was to be manipulated in favour of the promoters?

• Or was it because the government feared that an independent, fearless, honest and competent SEBI would unearth the money laundering scams in which some of its own members were involved?

• Or was it all of the above factors?

The fact remains that the government refused to learn the lessons from the earlier stock market scams (1992, 2002 and 2012?), and choose to dismantle a regulator that for the first time was professional and had gained the confidence of the investors (Indian and foreign).

The capital market is a highly complex subject having huge impact on the economy. It cannot be left to the mercy of amateurs and interlopers posing as experts and to do so is inviting a third scam from which it will be difficult to recover.

The world over the stock markets are getting discredited due to lax regulation. The Occupy Wall Street Movement has gained global support despite regulators having prosecuted offenders and put them behind bars for decades. This is in sharp contrast to the cover ups of our market of which Sinha is an example.

For the record, the emoluments of Sinha at SEBI is Rs 36 lakh. Will the government consider giving him parity of Rs 3.6 crore that he earned at UTI?

(Arun Agrawal is the author of the book Reliance: The Real Natwar. The opinions expressed by the author and those providing comments are theirs alone, and do not reflect the opinions of Canary Trap)