If the market regulator goes strictly by the rule book, the promoters of depositories face the threat of prosecution. This is because the promoters have not taken any action to comply with the Securities and Exchange Board of India's IPO order directing them to revamp their management.

The order was passed last month. There has been no change in the board of directors or the top office bearers of either National Securities Depository Ltd or Central Depository Services Ltd.

However, it is learnt that the promoters of NSDL have appointed a committee to review the functioning of the institution while the promoters of CDSL are yet to meet to take a call on the matter.

Meanwhile, NSDL has appealed to the Securities Appellate Tribunal challenging the Sebi order. Declining to elaborate on what action Sebi proposed to take for such non-compliance, sources said that the repercussions could be "serious" as it was a order passed under Section 11B.

According to legal experts, non-compliance with the Sebi order issued under Section 11/11B could attract penal action or even prosecution.

Any aggrieved party can take judicial course and contest the Sebi order. Meanwhile, the entities have to comply with the directions of the regulator.

Mumbai-based securities lawyer Jayant Thakur said, "entities not complying with directives issued under Section 11 of the Sebi Act can be prosecuted."

It will be interesting to see what action Sebi takes to ensure compliance with the order, especially given the serious nature of the order, a legal expert said.

Interestingly, most of the promoters of the depositories are Sebi regulated entities in some form or the other. The three main shareholders of the NSDL are the National Stock Exchange, IDBI Bank and UTI.

Other shareholders include a host of banks including the State Bank of India [Get Quote]. The promoters of CDSL include Bombay Stock Exchange and a clutch of banks.

Efforts to get an official response from the lead promoters of the depositories proved futile as the concerned officials refused to comment on the issue.

IDBI Bank, the lead promoter of National Securities Depositories Ltd and the National Stock Exchange refused to comment on the action taken by them while a top UTI official said that the institution was only a passive investor in NSDL and was not taking active role in the matter.

Similarly, the Bombay Stock Exchange, the lead promoter of CDSL, did not respond to queries from Business Standard.

A Sebi source close to the case confirmed that the NSDL promoters had written to the regulator stating that they had appointed a "special committee to look into the matter."

The source said that this "did not quite mean compliance with the order since the action was not in line with the directions provided by Sebi."

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