REPORT
JOINT COMMITTEEON
STOCK MARKET SCAMAND
MATTERS RELATING THERETO
(THIRTEENTH LOK SABHA)
(VOLUME I REPORT)
Presented to Lok Sabha on 19 December, 2002Laid on the Table of Rajya Sabha on 19 December, 2002
LOK SABHA SECRETARIATNEW DELHI
December 2002/Agrahayana 1924 (Saka)
C.B. No. 462
Price of Volume I : Rs. 230.00Price of Volume II : Rs. 45.00
2002 BY LOK SABHA SECRETARIAT
Published under Rule 382 of the Rules of Procedure and Conduct of Business in Lok Sabha (Tenth Edition)and printed by Jainco Art India, 13/10, W.E.A., Kargol Bagh, New Delhi.
CONTENTS
Page
COMPOSITION OF THE JOINT COMMITTEE ............................................................................... (iii)
LIST OF ABBREVIATIONS USED IN THE REPORT ......................................................................... (v)
INTRODUCTION................................................................................................................................ (xi)
PART I
I. The Constitution of JPC . ................................................................................................ 1
II. Overview . .......................................................................................................................... 6
III. Implementation. ................................................................................................................ 12
IV. Irregularities by Brokers including SHCIL. .................................................................... 19
1. Ketan Parekh Entities .................................................................................................. 20
2. Defaulted Brokers of Calcutta Stock Exchange .................................................. 29
3. Other Brokers ................................................................................................................ 35
4. Stock Holding Corporation of India Ltd. ............................................................... 45
V. Banks. .................................................................................................................................. 50
1. Overview ....................................................................................................................... 50
2. Cooperative Banks ...................................................................................................... 54
3. Commercial Banks ...................................................................................................... 80
VI. Stock Exchanges. ............................................................................................................. 114
1. Calcutta Stock Exchange ......................................................................................... 114
2. Matters regarding other Stock Exchanges ............................................................ 136
VII. Role of Promoters and Corporate Entities. ................................................................. 146
VIII. OCBs and Sub-Accounts of FIIs. .................................................................................. 165
IX. Securities and Exchange Board of India. .................................................................. 187
1. Regulation of business in Stock Exchanges .......................................................... 189
2. Surveillance and Investigation .................................................................................. 194
3. Powers of SEBI .............................................................................................................. 203
Page
4. Demutualisation ............................................................................................................ 210
5. Systemic reforms .......................................................................................................... 215
X. Reserve Bank of India. ................................................................................................... 222
XI. Department of Company Affairs. .................................................................................. 252
XII. Action by Investigative Agencies . ............................................................................. 264
1. Central Bureau of Investigation. .............................................................................. 264
2. Directorate of Enforcement ...................................................................................... 280
3. Central Board of Direct Taxes.................................................................................. 291
XIII. Ministry of Finance. .......................................................................................................... 309
XIV. Investors Protection. ......................................................................................................... 323
PART II
UNIT TRUST OF INDIA
XV. Overview. ............................................................................................................................ 339
XVI. Investment Policy and Decisions. ................................................................................. 343
XVII. Unit Scheme-64 ................................................................................................................. 372
XVIII. Role in the Calcutta Stock Exchange Payout Crisis. .............................................. 389
XIX. Role of Trustees. ................................................................................................................ 403
XX. Ministry of Finance and UTI ........................................................................................... 410
XXI. Future Role ......................................................................................................................... 427
Observations/Conclusions/Recommendations. ......................................................................... 437
PART III
Appendices*
Minutes of Sittings of the Committee**
Evidence before the Committee**
*Printed separately-Volume II.**Not printed. Five copies placed in Parliamentary Library.
(ii)
COMPOSITION OF THE JOINT COMMITTEE ON STOCK MARKET SCAMAND MATTERS RELATING THERETO
Shri Prakash Mani Tripathi Chairman
MEMBERS
Lok Sabha
2. Shri Mani Shankar Aiyar3. Smt. Margaret Alva4. Shri Vijayendra Pal Singh Badnore
*5. Shri Raashid Alvi6. Shri C. Kuppusami7. Shri Jagannath Mallik8. Shri Rupchand Pal9. Shri P.H. Pandian
10. Shri Pravin Rashtrapal11. Shri S. Jaipal Reddy12. Kunwar Akhilesh Singh13. Shri Maheshwar Singh14. Shri Prabhunath Singh15. Shri Kirit Somaiya16. Shri Kharabela Swain17. Shri K. Yerrannaidu
**18. Shri C.P. Radhakrishnan**19. Shri Srichand Kriplani
***20. Shri Anant Gudhe
Rajya Sabha
21. Shri S.S. Ahluwalia22. Shri Nilotpal Basu23. Shri K. Rahman Khan24. Shri Praful Patel25. Shri Kapil Sibal26. Shri C. Ramachandraiah27. Shri C.P. Thirunavukkarasu28. Shri Prem Chand Gupta29. Shri Amar Singh
@30. Shri Lalitbhai Mehta
SECRETARIAT
1. Shri John Joseph Additional Secretary2. Smt. Paramjit Kaur Sandhu Joint Secretary3. Shri A. Louis Martin Deputy Secretary
* Nominated w.e.f. 22.8.2001 vice Dr. Baliram resigned.** Nominated w.e.f. 26.2.2002 vice S/Shri Vijay Goel and Harin Pathak resigned.*** Nominated w.e.f. 28.11.2002 vice Shri Anandrao Vithoba Adsul resigned. Shri Anandrao Vithoba Adsul had been nominated
w.e.f. 9.8.2002 vice Shri Anant Gangaram Geete resigned.@ Nominated w.e.f. 9.12.2002 vice Shri Vikram Verma resigned. Shri Vikram Verma had been nominated w.e.f. 7.5.2002
vice Shri Ramdas Aggarwal retired from Rajya Sabha.
(iii)
LIST OF ABBREVIATION USED IN THE REPORT
AACS As Applicable to Cooperative Societies
ACB Audit Committee of Board
ALM Assets Liability Management
ACMM Additional Chief Metropolitan Magistrate
ADs Authorised Dealers
ADB Asian Development Bank
ADRs American Depository Receipts
AFI Annual Financial Inspection
AGM Annual General Body Meeting
AIFI All India Financial Institutions
AIL Annual Investment Ltd.
ALBM Automated Lending and Borrowing Mechanism
AMCs Asset Management Committees
AMC Asset Management Company
AOPs Association of Persons
ARSs Assured Return Schemes
ATL Asia Today Ltd.
ATR Action Taken Report
BFS Board of Financial Supervision
BHL Brentfield Holdings Ltd.
BLESS Borrowing and Lending of Securities Scheme
BOI Bank of India
BoT Board of Trusties
BR Bank Receipt
BR Act. Banking Regulation Act
BSE The Stock Exchange, Mumbai
BSPL Biyani Securities Private Ltd.
CAMELS Capital Adequacy, Asset Quality, Management Earnings Liquidity System& Controls
CBI Central Bureau of Investigation
CBDT Central Board of Direct Taxes
CCBL City Cooperative Bank Ltd.
CCL Century Consultants Ltd.
CD Certificate of Deposit
(v)
CDSL Central Depository Securities Ltd.
CEO Chief Executive Officer
CIS Collective Investment Scheme
CLB Company Law Board
CMD Chairman and Managing Director
CM Capital Market
CMM Chief Metropolitan Magistrate
COB Committee of Board
COP Cash on Payout
CRC Credit Rating Cell
CRCS Central Registrar of Cooperative Societies
CRAR Capital to Risk Assets Ratio
CRR Cash Reserve Ratio
CRS Compulsory R