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Informist, Thursday, Oct. 3, 2024

 

By Rajesh Gajra

 

MUMBAI – Two weeks back, the government broke its silence on the controversial allegations of conflicts of interest against Securities and Exchange Board of India Chairperson Madhabi Puri Buch. Finance Minister Nirmala Sitharaman said in an interview with a TV channel that Buch and her spouse had already addressed the allegations. She said facts have been taken on board, implying that the government had no immediate reason to doubt the explanations provided by the Buchs in their public statements in the matter.

 

Last month, Informist had reported a part-time SEBI member's view that it was for the government to take action in the matter of the allegations against the SEBI chairperson. The government, through the finance minister, has subtly indicated that it may not take any action in this matter.

 

The ball therefore must go back to the board of SEBI. The SEBI board is not merely a group of qualified persons. As a collective, it holds adequate powers to decide and act, and do so swiftly when required.

 

The financial regulator has a governing board with a mix of whole-time and part-time members, and an executive chairperson. In day-to-day operations, the final word on any enforcement order, circular, or file, vests with the chairperson. The whole-time members have independent powers on operational matters including enforcement orders, but these are still subject to the chairperson's scrutiny.

 

But so far as SEBI's Code on Conflict of Interests for Members of Board is concerned the chairperson is accountable to the entire board of members of the market regulator. The code requires the chairperson to disclose all information on any matter that may conflict with the official role, irrespective of his/her financial or non-financial association. The entire board of SEBI has every right to access this information at any point in time. This is the rule.

 

In matters under investigation or where SEBI's approvals are needed as a part of routine compliance of norms, a disclosure by the chairperson has to be followed by recusals. Here too, all SEBI board members have the right to know when such recusals take place. Buch as a chairperson has claimed in her personal joint statements with her spouse Dhaval Buch that she had complied with all relevant disclosures and recusals.

 

But did other board members know about every disclosure and recusal of Chairperson Buch? And what did they do about it? Did she recuse herself from the Adani-foreign funds probe? Did the board make the information on Buchs' holdings in the offshore fund structure available to the investigating officer in the case? This is important because the investigating officer would be reporting to someone, and the onus was on the board members of SEBI, excluding the chairperson, to ensure that the reporting was not to Buch.

 

The conflict of interest code is also clear that the board of SEBI must assign a matter where there is a conflict of interest on the part of the chairperson to another member or a committee of members. Was therefore a panel of members, excluding the chairperson, created to handle the Adani probe? Or alternatively was a sole member assigned?

 

There have been allegations of Buch's conflicts of interest extending beyond the Adani case and covering cases of other companies where SEBI was either carrying out investigations or where an entity was dependent on getting approval from SEBI. All Buch has said in these cases is that she has made all disclosures and recusals.

 

The SEBI press release on the day after the Aug. 10 report by Hindenburg Research said "relevant disclosures required in terms of holdings of securities and their transfers have been made by the Chairperson from time to time. Chairperson has also recused herself in matters involving potential conflicts of interest." This was an unsigned press release from SEBI and quite possibly made only after getting approval of the chairperson who is the final authority on all press releases.

 

But the investors and other market participants, who are not certain how much seriously they should take the allegations against Buch, haven't heard anything from the other board members of SEBI. The conflict of interest code puts them at the centre stage when it comes to the chairperson's conflicts of interest. So, whether the government acts or not, they should. They must also make necessary disclosures to the public. This cannot happen too fast or too soon.

 

While several allegations, particularly those made by the Congress party, seem to have been put to rest, the allegation that the SEBI chairperson earned large amounts of money through consultancy arrangements in the firm where she owns 99% of the shares has neither been denied nor explained. This is not correct. Even if it is not mala fide, it is a breach serious enough to merit a resignation or action or a thorough explanation. So far, we have neither.

 

SEBI has taken great strides in disclosure norms pertaining to listed companies and insiders under the listing and insider trading regulation. The top listed companies have to verify market rumours on a matter or unpublished information that can move their share prices. SEBI even requires persons sharing household or residence with a connected insider to be deemed as an insider.

 

SEBI must lead by example when it comes to its own affairs. Clarity must be provided by the SEBI board on the disclosures, recusals, awareness of the recusals by the other board members and investigating officers.  A mere statement that relevant disclosures were made and recusals undertaken is not sufficient accountability.  End

 

Edited by Ashish Shirke

 

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