'Smarter people will bend the law'

'You may put hundreds of checks and balances, but human beings are ingenious.'

"Nobody has any idea about the kind of reforms that have happened at the NSE in the last six years," J N Gupta -- former executive director, Securities and Exchange Board of India -- tells Prasanna D Zore/Rediff.com in the concluding segment of a three-part interview.

• Part 1: NSE Mess: 'Chitra was wrong'
• Part 2: 'NSE is not just Chitra and Anand alone'

What kind of systemic reforms are needed across the system so that corporate governance issues like these do not recur?

I would say that any system will be susceptible to problems. Even this God-made world is not without a problem.

Every system's integrity will be the sum total of the integrity of the people involved.

You cannot take human beings away from the system and if human beings are doing it and there is a problem of integrity, then system integrity will always have chances of being compromised.

Isn't a good systemic framework all about solid checks and balances? One always knows that human integrity is susceptible to compromise, but isn't that why we need strong checks and balances in the functioning of any system?

You may put hundreds of checks and balances but human beings are ingenious.

We have laws against murders and murderers since a very long time.

Have these laws succeeded in stopping murders or crimes without many times criminals not getting arrested?

So, the problem is laws will be there governing people, institutions, systems, societies but every time there will be a smarter set of people who will bend the law.

What reforms are needed then to at least lessen the number of such episodes?

First, nobody has any idea about the kind of reforms that have happened at the NSE in the last six years (after Chitra's removal as MD and CEO).

Even if reforms have happened (at the NSE) there is a continuous need for reforms. It is an ongoing process.

Life is an exam where questions keep getting added every day. We will never be 100 per cent qualified in life's exam. The same applies to institutional reforms.

Secondly, any organisation is a passive organisation.

Institutions and organisations don't function on their own. It needs an active component and that is human beings.

Now, if a person at the junior level is corrupt, its impact will be very little. But if the person at the top becomes irrational, or corrupt, then there will be tremors all across the company.

That is where it is important to have people with non-impeachable integrity (at the top). But in India the problem is we are always in awe of people (at the top of any organisation or institution); we get mesmerised, charmed by people at the top.

But does it mean that one should also not question Sebi and NSE. After all, they are institutions where public interest is involved.

Sebi's primary role is to develop, regulate and protect investors.

The best protection to investors could be that no wrong ever happens to the public interest.

That can only be ensured when there are no listed companies. That will be the best thing.

If there are no listed companies, there will be no investors, no problems. But that will be contrary to the (Sebi's) first job of developing the market.

When you have contradictory obligations you have to find a balance to develop, regulate and protect. I cannot have any of these in a disproportionate manner.

It is like a tripod. The moment one of the legs is imbalanced, the tripod will fall.

I have to balance the development, regulation and protection of public interest. I can't have extreme of any one objective.

Feature Presentation: Rajesh Alva/Rediff.com