Is ICEX Giving a Clean Chit to LES Committee Even When the Forensic Audit Reveals Mismanagement?
Moneylife Digital Team 19 August 2021
UPDATED at 4.10pm on 19 August 2021 to include response received from ICEX
There was mismanagement in the liquidity enhancement scheme (LES) at the Indian Commodity Exchange Ltd (ICEX) that resulted in a loss of Rs15 crore. The board of directors of ICEX ordered a forensic audit while sending its managing director and chief executive (MD & CEO) Sanjit Prasad on leave.
The forensic audit indicted members of the LES committee, including the MD & CEO. And yet, there is little disciplinary action and the MD & CEO is back at the helm of  ICEX from  leave without even replying to the show-cause notice (SCN) issued by the disciplinary action committee (DAC), says a whistle-blower. 
According to the whistle-blower, as directed by the Securities & Exchange Board of India (SEBI), the ICEX board appointed a forensic auditor for the complaints received by the Exchange on the mismanagement of the LES. The forensic auditor submitted its report on 30 October 2020 based on which the board took action. 
In the meantime, the board asked the MD & CEO to go on leave from 22 April 2020. At its meeting on 29 May 2020, the board asked him to look after the business of the Exchange and guide the business team from home without coming to the office.
In an email response, Pradeep Mishra from ICEX says, "Mr Sanjit Prasad was sent on leave in April 2020 while the forensic audit commenced in June 2020. Post forensic audit the report was submitted to the board. The forensic audit report was deliberated by the board and subsequently, the board has asked Mr Sanjit Prasad to resume. The report of the forensic audit is privy to the board."
"He was being paid salary since then. However, he was not involved in the business of the ICEX and the board has not raised any question on this. The forensic audit has thrown serious lapses and indicted him. However, he managed to come back with help from his brother," the whistle-blower alleges.
Generally, LES is floated by exchanges to promote trading where money is provided to brokers for bringing in liquidity. 
In its meeting on 12 May 2021, ICEX board held that the MD & CEO, chief financial officer (CFO), other key management persons (KMPs) and members of the LES committee, excluding outside expert and shareholder directors are responsible for the mismanagement and loss to the Exchange. 
The board then constituted the DAC consisting of Suresh Kumar Agarwal as chairman and Chitra Shringare and Suresh Babu Konakanchi as members.
While Mr Agarwal and Ms Shringare are both public interest directors on the ICEX board, Mr Konakanchi represents Reliance Exchange Next Ltd, a unit of Reliance Capital Ltd, which is one of the shareholders of ICEX.
After going through the findings of the forensic audit report, the report from two independent directors, and the minutes of the ICEX board meeting and LES committee meetings, the DAC decided to issue SCNs to members of LES. Moneylife has seen the SCNs. 
In the SCN issued to Sanjit Prasad on 27 May 2021, the DAC says, "During the financial year 2019-20, while working as MD and CEO of the ICEX and also as a member of the LES committee, you implemented the LES, which proved to be quite unsuccessful and resulted into financial loss of about Rs15 crore to the Exchange."
"As a member of the LES committee, you structured the remuneration of market makers to allow them the four-tier payment whereas the other exchanges allowed only fixed daily payments. There was no demand by the market makers for variable changes, reimbursement of statutory expenses and the incentives for better lot size and better tick size but as a member of the LES committee, you recommended uncalled for payments to the market makers. This resulted into the payment of an additional amount to the market makers without commensurate benefit to the Exchange," the SCN issued by the DAC says. 
The DAC also held the LES committee responsible for not making any effort to ensure an increase in volume in steel long, paddy and rubber contracts or stop the scheme. "This," the DAC says, "resulted into a piling of financial liability on the Exchange."
The DAC further says without the SEBI increasing the limit of open interest, LES was started in diamond contracts at ICEX, which "resulted in the payment of incentives to market makers without commensurate benefit to the ICEX."
Similar SCNs were issued to two other members of the LES, including CFO Ghanashyam Rao and Ranjit Samantray, chief regulatory officer (CRO) of ICEX. 
However, no notice was issued to any other member of the LES committee. The whistle-blower says, "Suspicion arises whether Lav Chaturvedi, representative of Reliance Exchange Next was not issued SCN to avoid 'fit & proper' criteria as applicable to a shareholder and its representative. Similarly, other members of the LES committee, Raj Benahalkar (outside expert and chairman of LES committee) and Sushil Limbulkar, former chief information officer (CIO) of ICEX, were also not issued SCNs. What was the reason?" 
"Mr Chaturvedi, the CEO of Reliance Securities Ltd, was a director of ICEX. On 30 September 2020, he resigned from the ICEX board and consequently ceased to be a member of LES committee. At the request of the MD & CEO, the board in its meeting on 14 November 2020, appointed Mr Chaturvedi as an outside expert on the LES committee," the whistle-blower says.
Mr Mishra from ICEX confirmed that Mr Prasad, the MD & CEO is back from his long leave.
However, he declined to share names of other people against whom the DAC had initiated an inquiry and what are the findings of the DAC, saying, "The matter is privy and limited to DAC."
Moneylife sent emails to senior officials of SEBI. However, till writing this report, we have not received any reply from them. We will update this article as and when we receive any reply from them.
3 years ago
Dharamshala and The Great Finance Ministry is not bothered and may not be even aware of it.
Free Helpline
Legal Credit