Market regulator Securities and Exchange Board of India (SEBI) has slapped a penalty of Rs50 lakh on National Stock Exchange (NSE) for changing its compensation policy for top executives without taking prior approval from SEBI. This change had happened in 2012, however, it allowed both Ravi Narain and Chitra Ramakrishna to walk away with a sum running into crores of rupees for leave encashment.
SEBI has not ordered any clawback and the penalty itself is a fraction of the benefit claimed by two top officials when they quit the Exchange nearly five years ago. NSE’s former managing director (MD) and chief executive officer (CEO) Chitra Ramakrishna was paid Rs1.54 crore just as leave encashment for additional 168 days without approval from SEBI. The SEBI order does not mention benefits earned by other senior management, if any, except Chitra Ramakrishna and Ravi Narain, former MD & CEO of NSE.
Ironically, while Ms Ramakrishna has walked away with compensation that is three times the penalty charged, it is the Exchange that is being penalised not the beneficiaries. This is significant in NSE’s case, since Ravi Narain and Chitra Ramakrishna were part of the founding team and have been in senior management ever since the Exchange started operations 27 years ago. This only means that SEBI has condoned the action while pretending to fine the Exchange. SEBI is also making no effort to close the investigations and disciplinary proceedings with regard to the high frequency trading (HFT) scam, meanwhile the Exchange has seen a large number of broker defaults eroding investor confidence.
In the order, Amit Pradhan, adjudicating officer of SEBI,
says, "...the material brought on record shows that the failure of taking prior approval from SEBI before making a change in its policy, which was approved by the compensation committee of NSE or board of NSE on 26 November 2012 may be a single instance but, it has led to violation on repeated instances i.e. encashment of accumulated ordinary leave by Ravi Narain and Chitra Ramakrishna over and above the limit of 360 days at the time of his retirement and her resignation, respectively."
"Taking into consideration all the facts and circumstances of the case including the aforesaid 15J factors and exercising the powers conferred upon me under section 15I of the SEBI Act read with rule 5 of the adjudication rules, I hereby impose a monetary penalty of Rs50 lakh on NSE under section 15HB of the SEBI Act," the order says.
SEBI says, during eight months and two days of FY16-17, NSE permitted an additional encashment of 168 days or a total of 528 days to Chitra Ramakrishna on cessation of her service from the bourse. The extra remuneration paid to Chitra Ramakrishna for encashment of the additional 168 days of leave was Rs1.54 crore.
Mr Pradhan also observed that, "...the terms and conditions of the managing director (MD)’s compensation has been changed by way of the decision dated 26 November 2012 of the compensation committee without obtaining prior approval of SEBI under regulation 27(4) of the SECC Regulations. Further, there is no material to prove that the said changes in the terms and conditions of the compensation structure which benefitted its senior management including its MD was communicated to SEBI for its approval. It has also not been brought to my notice by NSE that they have even applied for post facto approval of SEBI under regulation 27(4) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations (SECC Regulations) about the said change. Thus, the allegation against NSE to such extent stands established and therefore, NSE violated regulation 27(4) of the SECC Regulations."
The SEBI order talks about two allegations in this matter. First, policy change approved by the compensation committee or NSE board without prior approval from SEBI and, second, the encashment of accumulated ordinary leave to NSE’s MD & CEO Ravi Narain and Chitra Ramakrishna over and above the limit of 360 days, without taking prior approval from the market regulator.
The minutes of the meeting of the compensation committee of NSE held on 26 November 2012, mentions that – “...as per the staff policy, accumulated ordinary leave is allowed to be encashed at the time of leaving the organisation subject to a limit of 360 days. The Committee discussed the matter and decided that in case of senior management (i.e. senior vice - president and above including working directors), the accumulated ordinary leave be allowed to be encashed without limit at the time of retirement.”
"This change in policy dated 26 November 2012, with respect to encashment of accumulated ordinary without any limit for senior management at the time of retirement is in sharp contrast to the policy on 1 October 2012, which prescribed that a resigned employee is entitled to encash only a maximum of 360 days. I am, therefore, of the view that the argument of NSE that the change in policy for encashment of accumulated leave without any limit for senior management including MD by the compensation committee of NSE on 26 November 2012, is within the blanket term –'such other benefits to MD & CEO as are made available by the Company to other members of the staff from time to time' is devoid of any merit and rejected hereby," the order passed by the adjudicating officer says.
There is no mention about who were the members of the compensation committee who took this decision and whether NSE’s high-profile board bothered to follow up to check whether SEBI's permission had been obtained.
Earlier on 19 July 2017, the ministry of finance had sent a letter to SEBI referring to a news report, which relied upon the annual report of NSE, stating that former MD and CEO of the NSE, earned about Rs44 crore in three years during which she held the aforesaid position at the stock exchange and that she earned Rs23 crore as total remuneration in the last eight months of her tenure.