Capital Markets: Challenges and Developments

On the allegations against the SEBI chief      

Explained | Governance | Mains Paper 2: Statutory, Regulatory & Various Quasi-Judicial Bodies
Note4Students

From UPSC perspective, the following things are important :

Mains level: Applicability of Office of Profit on SEBI Chairperson;

Why in the News?

Hindenburg Research has alleged SEBI Chairperson Madhabi Puri Buch and her husband held stakes in Adani-linked offshore funds, implying bias in SEBI’s Adani investigation.

Accusations Against SEBI Chairman Madhabi Puri Buch 

  • Hindenburg Research has accused SEBI Chairman Madhabi Puri Buch of conflicts of interest related to offshore funds tied to the Adani Group, financial opacity regarding a consulting firm transferred to her husband, and potential favoritism towards Blackstone, where her husband is a senior advisor. 

Status of the Ongoing Investigation by SEBI

  • Supreme Court Oversight: The Supreme Court has directed SEBI to investigate the allegations made by Hindenburg Research.
  • Show Cause Notice by SEBI: In June 2024, SEBI issued a show cause notice to Hindenburg Research, indicating that the regulator is actively pursuing the matter.

About SEBI’s Code on Conflict of Interest:

According to SEBI’s Code on Conflict of Interest, board members, including the Chairperson, are prohibited from holding any other office of profit or engaging in professional activities that involve receiving a salary or professional fees.It can constitute a number of different things that need to be disclosed by the concerned board member:

  • Certain transactions in shares: The Code says that a member must disclose their, and their family’s (spouse, dependent children below 18 years of age) holdings within 15 days of the assumption of Office, and annually update this disclosure.
  • Outside private activities: SEBI board members are not allowed to hold any other ‘office of profit’.
  • Acceptance of gifts: Board members are not allowed to accept “any gift (whose value exceeds Rs 1,000) by whatever name called, to the extent possible, from a regulated entity”. If they do, they have to hand it over to the General Services Department of the SEBI.
  • Miscellaneous: Members are bound to disclose “any post, other employment or fiduciary position” which they hold or have held in the past five years, in connection with any regulated entity.

Way forward: 

  • Enhance stricter disclosure requirements:  SEBI should implement stricter disclosure requirements for all board members, including the Chairperson, ensuring transparency about their financial interests, past affiliations, and potential conflicts.
  • Establishing an Independent Ethics Committee: An independent ethics committee should be created to oversee and review any potential conflicts of interest involving SEBI board members.

Mains PYQ: 

Q In the light of Satyam Scandal (2009), discuss the changes brought in the corporate governance to ensure transparency and accountability. (2015)

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