NSE Controversy: Need for Corporate Governance Reforms 

  • IASbaba
  • February 22, 2022
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  • GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

NSE Controversy: Need for Corporate Governance Reforms 

Context: Recent allegation of Corporate governance transgression by NSE management, particularly its former Chairman Chitra Ramakrishna.

What is the controversy all about?

  1. Sharing of Confidential information with unknown Spiritual Guru
    • Market regulator SEBI recently stated in its order that Chitra Ramkrishna, a former chairperson of the National Stock Exchange was manipulated by a “Siddha Purusha/Yogi (an unidentified spiritual guru) and allegedly provided him confidential company information including the NSE’s five year projections, financial data, dividend ratio, business plans, agenda of board meetings and also consulted him on employee annual appraisals.
  1. Appointment without due Process
    • Ms. Ramkrishna also appointed an individual, Anand Subramanian, first as chief strategic adviser and, next, as group operating officer without following due process, allegedly on the advice of this “spiritual person”.
    • Mr. Subramanian lacked the credentials for the job, the position was not advertised and Mr. Subramanian was interviewed solely by Ms. Chitra Ramkrishna. 
    • He was recruited on a salary that was more than 10 times what he last drew and his salary was frequently revised without any evaluation being recorded. 
    • Mr. Subramanian was hired as a consultant and progressively given operational powers until he became virtual second-in-command in the NSE hierarchy. Ms. Ramkrishna ensured he was not designated as a key management person as that would have meant bringing Mr. Subramanian within the ambit of regulation. 
  1. Tax angle
    • The income tax department is now probing possibilities of fund diversion to overseas accounts and possible tax evasion as they found frequent personal and official travel to tax havens like Singapore, Mauritius and Seychelles just before and after Chitra Ramkrishna’s exit from NSE.
  1. Co-Location Case
    • CBI is also probing allegations that certain brokers (like OPG Securities Pvt. Ltd), in conspiracy with unknown officials of NSE, were given preferential access to NSE’s co-location facility during the period 2010-2012 that enabled it to login first to the exchange server of Stock Exchange.
    • This in turn helped these brokers to get the data before any other broker in the market. Even if the time advantage was limited to a split second such an  advantage can result in windfall gains. 
    • According to tax officials, these traders made gains to the tune of Rs 50,000 crore 
    • CBI has also issued a look-out circular against Chitra Ramkrishna, former NSE CEO Ravi Narain and the exchange’s former COO Anand Subramanian in order to prevent them from leaving the country.
  1. Ineffective Board
    • After the NSE board was informed about the irregularities in Mr. Subramanian’s appointment, it discussed the matter but chose to keep the discussions out of the minutes on grounds of confidentiality and the sensitivity of the matter. 
    • Despite being aware of Ms. Ramkrishna’s transgressions, it allowed her to resign and on generous terms instead of taking action against her. 
    • Public Interest Directors (PIDs) failed to keep SEBI informed about the goings-on at the NSE. 

How did all this happen and how could it have gone on for so long? 

  • The answers lie in the culture of the corporate world and the board room. 
  • NSE rakes in enormous profits. In such a situation, boards would tend to think they can live with a degree of nepotism and other human failings in the CEO. For instance: ‘She’s doing a great job, she’s entitled to pick her team.’ Such an attitude may lead to governance failures at times.
  • The problem of dysfunctional or ineffective boards is structural. It has to do partly with the way board members are selected and partly with the absence of penalties where directors do not live up to their mandate.

What measures are required?

  • Reforming the selection of Board members
    • If we are to bring about meaningful change, we need to bring in diversity in the selection of board members. 
    • The top management must be allowed to choose not more than 50% of the independent directors. The rest must be chosen by various other stakeholders — financial institutions, banks, small shareholders, employees, etc.
    • Then, we will have independent directors who are not beholden to the top management for their jobs. They will be accountable, not to the top management, but to stakeholders who have appointed them. 
  • Ensure Accountability (including that of regulators) for lapses
    • In the NSE case, SEBI has penalised Ravi Narain who happened to be vice chairman. Mr. Narain has made the point that there is no reason why he should be singled out as the board of NSE was collectively responsible. 
    • Regulators must penalise errant directors through a whole range of instruments — strictures, financial penalties, removal from boards and a permanent ban from board membership. 
    • Lastly, regulators themselves must be held to account. For instance, questions have been raised as to why SEBI did not seek the help of the cyber police to ascertain the identity of the yogi.
    • We need periodic independent audits of all regulators by a panel of eminent persons. The audits must evaluate the regulators’ performance in relation to their objectives.
    • The internal processes and governance mechanisms of regulators must be subjected to the glare of public scrutiny. It is vital to guard the guardians. 


Outrage after particular episodes will not take us very far. We need significant institutional reform if corporate governance is not to remain an illusion. 

Can you answer these questions now?

  • What factors led to the recent controversy of National Stock Exchange? What measures are needed to prevent such issues from repeating?
  • What is the mandate of SEBI? Examine the recent issues pertaining to the functioning and role of SEBI in the regulatory context. 

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