According to finance ministry officials, Gandhi disclosed that the FII had to transfer a whopping Rs 300 crore to Thailand on an emergency basis to take care of "certain redemptions" and the unloading of shares in India was connected to this development.

Gandhi also clarified that Morgan Stanley had at no point of time wanted to deliberately take advantage of the UTI crisis to book short term gains. He reiterated the FII's faith in the Indian capital markets, particularly with respect the US-64 scheme. He went on to add that his company had a vested interested in ensuring healthy development of the Indian capital markets as his mutual fund has heavy investments inequities.

North Block had accused Morgan Stanley of deliberately pushing down the markets between October 5 and 7, forcing all-round bear hammering in the aftermath of a formal announcement of erosion in the value of the Unit-64 scheme.

Gandhi had earlier met SEBI chairman D R Mehta to explain his position with respect to the sale orders spread over October 5 and 7. Well-placed sources said that the ministry seemed satisfied with the response given by Morgan Stanley. It, however, made it abundantly clear that FIIs would not be allowed to take the capital markets for a ride by wilfully manipulating the markets.

The behaviour of FIIs also figured in the meeting between SEBI chairman D R Mehta and finance secretary Vijay Kelkar here on Wednesday. An informal mechanism is expected to be evolved by SEBI to ensure that bear hammering by FIIs, of the kind noticed in the aftermath of the UTI crisis, did not occur again.

The SEBI chief had already had a round of discussions with FIIs and more such interactionsare likely to follow in the future.

It may be recalled that SEBI had zeroed in on Morgan Stanley and Schroders as the two foreign institutional investors which pressed "abnormal" sales amounting to more than 70 per cent of the total sales affected by all FIIs on October 5.

According to top Sebi sources, while Morgan had sold shares to the tune of about Rs 84 crore on that day, Schroders had accounted for sales to the extent of about Rs 38 crore. "Both of them together accounted for over 70 per cent of the total sales by FIIs on that day," said a top Sebi source.

When contacted, Sebi officials had confirmed that these two FIIs had been found to have affected "abnormal" sales on that fateful day when the market recorded its third worst crash in a day by falling 224 points. "While any FII is most welcome to conduct normal trading, there is definitely something abnormal when just two FIIs press huge sales which is not entirely in keeping with the general trading pattern. These two FIIs accounted for over 70per cent of the sales on that day and this is definitely something to look at closely," he said.