The credibility of the Securities and Exchange Board of India (SEBI), the regulator of the world’s fifth-largest capital market, is facing serious challenges. Daily revelations surrounding SEBI chairperson Madhabi Puri Buch have sparked growing concerns about potential conflicts of interest and a lack of transparency within the leadership of this pivotal institution. Ironically, when judged by SEBI’s own strict standards on disclosure requirements for key management personnel (KMP) and rules against insider trading, the chairperson’s actions appear to fall far short of the transparency expected.
Three distinct groups have emerged in leveling accusations against SEBI’s leadership. First, Hindenburg Research released ‘whistleblower’ documents, pointing to a conflict of interest. Second, the Congress party has held multiple press conferences, raising various allegations and calling for an independent investigation. Finally, Subhash Chandra Goel, founder of the Zee group and himself facing scrutiny from SEBI, has accused Madhabi Puri Buch of corruption.
Several key issues emerge that demand precise clarification. These issues hinge on the standards that SEBI has enforced for market participants, financial intermediaries, market infrastructure institutions, and listed companies. These standards are the basis for SEBI’s decisions to initiate legal actions or impose substantial penalties.
The initial point raised by Hindenburg Research concerns Buch’s failure to recuse herself from the Adani investigation. Despite her and her husband’s offshore derivative investments being linked to the same nested entities under scrutiny, she remained involved in overseeing the high-profile Adani case monitored by the Supreme Court. Additionally, Hindenburg claims that Buch still retains a 99 per cent stake in a private advisory firm, which her husband has been using post-retirement, and that she has received income from prominent Indian entities.
Several issues are noteworthy and demand explicit clarification. These issues revolve around the standards SEBI has set for market participants, financial intermediaries, market infrastructure institutions, and listed companies. These standards are the foundation for SEBI’s decisions to prosecute or impose significant penalties.
Hindenburg Research has highlighted a significant concern: Buch did not recuse herself from the Adani investigation, despite having offshore derivative investments linked to the same nested entities under scrutiny. This investigation is high-profile and under the Supreme Court’s watch. Additionally, Hindenburg claims that Buch still owns a 99 per cent stake in a private advisory firm, which her husband has been using since his retirement, and that she has received payments from prominent Indian entities.
The Congress initially claimed that Buch earned five times more (Rs 16.80 crore) in her current role as a regulator compared to her earnings at ICICI Bank. It has since emerged that this significant income was due to her exercising shares granted through the Employee Stock Options Plan (ESOPs). Given SEBI’s involvement in various regulatory matters related to ICICI Bank, the fact that Buch frequently exercised ESOPs and benefited from rising share prices raises concerns about disclosure and whether she had access to unpublished price-sensitive information at those times. Additionally, the Congress has provided documents showing that Buch rented out her personal property to an associate of a listed entity currently under SEBI’s investigation.
Another issue has surfaced concurrently, involving SEBI employees’ dissatisfaction with the work environment. Employees have raised concerns about an unprofessional culture, unrealistic productivity expectations, and problems with perks, housing allowances, and compensation. This situation was poorly managed, similar to the handling of the Hindenburg allegations, and resulted in a public protest by several hundred employees. They demanded the retraction of a misleading press release from management that suggested the employees were being swayed by “misguided external elements.” The employees accused the management of “spreading lies about them.”
This context highlights the need for an in-depth examination of how these allegations — regarding insufficient disclosures, inadequate recusal, and the failure to sever financial ties upon assuming SEBI’s leadership — affect SEBI’s credibility in overseeing the capital markets. It also reveals the lack of a strong framework for managing conflicts of interest.
In contrast, developed nations with a revolving door between the public and private sectors offer a clear counterexample. In the US, regulatory leaders are mandated to either divest from holdings that could create conflicts of interest or place such assets in a blind trust. These rigorous measures are designed to keep public officials in regulatory positions free from influences that might compromise their duties. This principle was notably reinforced by the Pinochet case, which established that judges must avoid not only actual impropriety but also the mere appearance of it.
SEBI holds those it regulates to rigorous standards of transparency, yet it seems these same standards are not applied to its own leadership, revealing a striking hypocrisy noted by market observers. Even more perplexing is the National Democratic Alliance (NDA) government’s response, which has been to ignore the issue entirely. Both the government and the Finance Minister have chosen to remain silent, effectively rendering the influential SEBI board ineffective.
The board, which includes the chairperson, three full-time members, the Secretary of the Department of Economic Affairs, the Secretary of the Ministry of Economic Affairs, a Deputy Governor of the Reserve Bank of India, and an academic public representative, seems to be operating with a notable lack of authority. In contrast to the United Progressive Alliance (UPA) era, when a joint secretary overseeing capital markets was a SEBI board member with significant influence, the current SEBI board appears to embody the old adage of the three monkeys who “see no evil, hear no evil, and speak no evil.”
In my view, serving as members of a regulatory body does not afford them the luxury of choice. This stands in sharp contrast to SEBI’s expectations for the boards of listed companies. Over the past twenty years, SEBI has consistently strengthened corporate governance standards and listed rules, placing substantial responsibilities on independent directors regarding corporate disclosures, price-sensitive information, and fiduciary duties. When these directors neglect to scrutinise management, proxy advisory firms are quick to issue critical reports, pointing out these lapses and advising institutional investors on appropriate actions.
The government representatives on the SEBI board bear an enhanced obligation to uphold higher standards of transparency and accountability. Their failure to question the SEBI chairperson, conduct an impartial investigation, or take measures to safeguard SEBI’s integrity signifies a clear lapse in their duties. This situation reveals a significant gap in the regulatory framework, demonstrating that stakeholders lack recourse to hold a regulator accountable when both the administrative ministry and the government are unwilling to take corrective measures. Many believe that pursuing litigation would also be ineffective.
(The writer can be reached at dipakkurmiglpltd@gmail.com)
