The Joint Parliamentary Committee (JPC) was formed in 2001 with Prakash Mani Tripathi, Member of Parliament (MP), Lok Sabha, as chair, following the exposure of a stock market scam centered around Ketan Parekh. Members included Mani Shankar Aiyar (MP Lok Sabha); Margaret Alva (MP Lok Sabha); Vijayendra Pal Singh Badnore (MP Lok Sabha); Rashid Alvi (MP Lok Sabha); C. Kuppusami (MP Lok Sabha); Jagannath Mallik (MP Lok Sabha); Rupchand Pal (MP Lok Sabha); P. H. Pandian (MP Lok Sabha); Pravin Rashtrapal (MP Lok Sabha); S. Jaipal Reddy (MP Lok Sabha); Akhilesh Singh (MP Lok Sabha); Maheshwar Singh (MP Lok Sabha); Prabhunath Singh (MP Lok Sabha); Kirit Somaiya (MP Lok Sabha); Kharabela Swain (MP Lok Sabha); K. Yerran Naidu (MP Lok Sabha); C. P. Radhakrishnan (MP Lok Sabha); Srichand Kriplani (MP Lok Sabha); Anant Gudhe (MP Lok Sabha); S. S. Ahluwalia (MP Rajya Sabha); Nilotpal Basu (MP Rajya Sabha); K. Rahman Khan (MP Rajya Sabha); Praful Patel (MP Rajya Sabha); Kapil Sibal (MP Rajya Sabha); C. Ramachandraiah (MP Rajya Sabha); C. P. Thirunavukkarasu (MP Rajya Sabha); Prem Chand Gupta (MP Rajya Sabha); Amar Singh (MP Rajya Sabha); and Lalitbhai Mehta (MP Rajya Sabha).

The committee was mandated to investigate the manipulation of the Indian stock market, focusing on the involvement of brokers, corporate entities, and banks and the failures of regulatory authorities such as the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). The investigation covered events leading to the 2001 market crash, which also involved the collapse of Madhavpura Mercantile Cooperative Bank (MMCB) and the financial mismanagement at Unit Trust of India, particularly with its US-64 scheme. The committee examined the role of key financial institutions and the systemic issues that enabled large-scale manipulations of the market. It pointed out that previous JPC recommendations from 1992 had been ignored, contributing to the severity of the current crisis.

Ketan Parekh emerged as the key figure in the scam, with his entities owing over Rs. 1,273 crore to various corporate houses, Rs. 888 crore to MMCB, and Rs. 266 crore to Global Trust Bank. Parekh’s connections with private and cooperative banks, especially MMCB, enabled him to exploit the financial system through circular trades and unsecured advances totaling Rs. 4,626 crore. The committee also criticized SEBI for failing to prevent these malpractices, highlighting its weak surveillance and inadequate regulatory action. Similarly, the RBI was found responsible for not acting on the deficiencies it identified in MMCB’s credit-appraisal processes as early as 1999. The Calcutta Stock Exchange played a crucial role in the scam, as brokers at the exchange violated exposure limits, leading to a payment crisis involving Rs. 120 crore in defaults. The committee noted that Unit Trust of India had mismanaged public funds, and the misuse of the India-Mauritius Double Taxation Avoidance Treaty by offshore corporate bodies raised concerns about regulatory loopholes.

The JPC recommended stronger regulatory frameworks for SEBI and RBI and urged the government to expedite legislative reforms. It called for special courts to handle financial fraud cases, including those related to Ketan Parekh, to ensure swift justice. The committee emphasized the need for demutualizing stock exchanges and implementing stricter corporate-governance norms to prevent future market manipulations. It also urged SEBI and the Department of Company Affairs to investigate further the nexus between Ketan Parekh, banks, and corporate entities. The Ministry of Finance was criticized for its slow response in implementing previous recommendations of the earlier JPC set up in 1992, and the new JPC requested that an Action Taken Report be submitted within six months. The report underscored the necessity of holding regulators accountable to ensure market integrity and prevent the recurrence of such scams.

The recommendations of the JPC were only partially implemented. The powers of SEBI were increased, but special courts and laws for financial frauds were not created. The committee aimed to restore trust in India’s financial markets by addressing systemic issues, including weak regulatory oversight, misuse of financial systems, and governance failures it identified during its investigation. It proposed measures such as strengthening SEBI’s powers, improving corporate governance, demutualizing stock exchanges, and expediting legal processes to prevent future market abuses.