January 23, 2020
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India As A Terrorist State

Only the government can curb SEBI's power, but in First Global's case, its patience has been infinite.

India As A Terrorist State
illustration by Jayachandran In Paris, at a packed press conference on November 7, the Pakistan President described India as a terrorist state. He was talking about Kashmir and was mouthing blatant propaganda. But in another more insidious but far more dangerous way, the Indian state has indeed become a practitioner of terrorism. This has happened by degrees and inadvertently, but it accounts for the deep sense of unease that the Vajpayee government's attempt to pass the Prevention of Terrorism Act has aroused in the country.

Two examples to state terror at the opposite ends of the human spectrum will serve to highlight why. On Saturday, an elderly couple was contemplating the purchase of a pashmina coat at a Kashmiri shop in Dilli Haat (in New Delhi) when another gentleman walked in, seized it and demanded how much it cost. On being told that it cost Rs 12,000 but that the first gentleman had not yet made up his mind, he lost his temper and began berating the shopkeeper. His wife joined in, cursed Kashmiris for being thieves and suggested the shopkeeper return where he had come from. When the first gentleman dug his heels in, the second stamped away. A few minutes later, two policemen arrived at the shop and informed the shopkeeper that he was under arrest and should accompany them to the police station. Enquiries by the first gentleman elicited the information that the man who had stamped away was an assistant commissioner of the Delhi Police. The policemen refused to tell the shopkeeper what the charge against him was but a miraculous change occurred when the first gentleman insisted on accompanying the shopkeeper to the police station and told them that his name was Gill. Gill graciously forgave them and forbore from telling them that his initials were not K.P.S.

The second case ratchets one's anxiety up to an altogether different level. In 1988, two young management institute graduates set up a securities trading firm in Mumbai and called it First Global. Their company grew rapidly till it became a premier brokerage house dealing in Indian securities for the FIIS. It also became the first non-Japanese Asian firm to be listed on the London Stock Exchange and one of a handful to be listed on NASDAQ.

Then some three years ago, they made the mistake of providing Rs 3.5 crore of seed capital and acquiring a 14.5 per cent share in a new e-newspaper called tehelka.com. Tehelka did extraordinarily well, and in October 2000 they decided to sell their shares and take the profit. However, before they could do so, on March 13 Tehelka broke the videotaped story of senior politicians accepting kickbacks to arrange favourable hearings for middlemen in arms deals. Five weeks later, on April 19, First Global received a fax from the office of D.R. Mehta, chairman of the Securities and Exchange Board of India (SEBI), informing it that it had been debarred from conducting business in the Indian share and security markets. Mehta issued the order under Section 11b of the SEBI Act, which empowers the chairman to 'debar an entity from doing business pending an investigation, in the larger interest of the capital market'. As if that were not enough, on the same day, conveniently late in the afternoon, one of the partners, Shankar Sharma, was arrested on an accusation by an Income-Tax officer, with whom he and his partner had had lunch, of having threatened to kill him. That a court threw out the accusation later only gave him limited solace.

Mehta's action illustrates the government's limitless powers of persecution.Clause 11b is quintessentially bad law on two counts. It inflicts punishment before conviction, and shifts the burden of proof from the accuser to the accused. As if that were not enough, it makes the opportunity for persecution limitless by not specifying any time limit for SEBI to complete its investigation. It thus makes it possible for SEBI to close down any firm it cares to, without having to prove anything. Only the government can curb its power but in First Global's case, the government's patience with SEBI has been infinite. The law ministry's Securities Appellate Tribunal took up First Global's appeal on June 3 and promised to give a final decision in two weeks. But it has granted SEBI extension after extension to "complete its investigations". The latest is till January 2002.

The charges SEBI is 'investigating' are comic. The main one is of insider trading: First Global is accused of having known of the Tehelka exposé beforehand and aggressively sold shares in the days preceding it. But stock exchange computers show that between March 8 and March 13, First Global actually purchased Rs 36.62 crore worth of shares. As for 'bear hammering', the Sensex fell from 4040 on March 8 to 3540 on March 13, before the exposé, and rose by 7.89 per cent in the two days after it, when for First Global to make a profit it needed to do the opposite. While big in the FII market, it was a pygmy in the BSE with only a Rs 15,000-crore annual turnover.

In the past seven months, First Global and its owners and employees have faced 15 I-T raids and 40 investigations by SEBI as it has thrashed around to find something to support the ban. But till date, no government agency has filed a single charge against it. In the meantime, the company's accounts are frozen, the partners are not allowed to travel abroad and its top employees and their families are threatened with jail. First Global has all but ceased to exist. It has been forced to lay off 220 out of its 250 employees. In a market without jobs, one of them has committed suicide.

A government faced with terrorism may need to enact special laws to deal with the intimidation of witnesses and the abuse of bail. But to put still more arbitrary powers into the hands of a criminal political class and a totally unaccountable bureaucracy is to court a certain descent from democracy into tyranny.
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