Who'll watch the watchdog? Did SEBI chief Madhabi Buch fail to disclose Adani links, recuse from probes?

After the Hindenberg allegations, questions are being asked if SEBI chief Madhabi Puri Buch failed to disclose her links to Adani Enterprises. The specific issues at stake are: whether she fully and unequivocally disclosed her investments in a fund that had inflatedthe stock prices of Adani group firms in the past, and why she didn't recuseherself from recent SEBI investigations into Adani when she was chairperson.

Buch, the chief of the Indian stock market regulator Securities and Exchanges Board of India, or SEBI, is at the eye of a storm after the activist short-selling firm Hindenberg Research made fresh claims about her allegedlinks to the Indian conglomerate Adani.

Why it's important to make disclosures

From a retail investor upwards, one is expected to make disclosures to their employers on stock market investments that could involve a conflict of interest or potential insider trading. Several financial organisations, for instance, would require their staff to disclose the stocks they've invested in.

Ideally, this should apply all the way up to the top of the food chain.

SEBI chairperson, being the head of a government agency, is supposed to make such disclosure to the government. Buch is the first private sector person, and woman, to be made SEBI chief, a post she assumed in 2022 for a three-year term.

While Buch, being a private sector person and not a civil servant, has the right to own shares of, or be in the board of, various companies or related entities, each of these investments - directly or indirectly- should have been known to the government to avoid potential future conflict of interest.

Why is the issue of recusal important for SEBI chairperson?

In simple terms, it's mandatory that if a SEBI official has a direct or indirect interest or stake in a company or person being investigated by SEBI, the official should reveal so and excuse him/herself from such investigations. There is precedent to this: former chairperson CB Bhave recused himself when the SEBI board was discussing the issue of National Securities Depository Limited's lack of oversight over a depository participant because Bhave was the managing director of NSDL at the time.

A former SEBI board member told the paper thatthere had been an instance in the past when the chairperson recused himself over what could be seen as a conflict of interest.

Watch |SEBI chief vs Hindenburg: Hindenburg links SEBI Chief to Adani report

It should be noted that Adani had been investigated by SEBI just last year, following earlier allegations by Hindenburg, and was given a clean chit. Buch was at the helm of SEBI at the time. Her conduct as a whole-time member or the chairperson of SEBI, when Adani-related complaints or investigations came to her desk, is at issue here, Indian Express (IE) newspaper cited a former SEBI chief as saying. "Did she recuse herself?”

A SEBI official who once investigated a stock exchange scam told IEthat he was told not to send his probe files to the SEBI chairman at the time because there were allegations against him too. “In the present case too with allegations of a conflict of interest being thrown around, the chairperson could and maybe should have recused herself from the Adani investigation,” IE quoted him as saying.

What is SEBI chief Buch and husband Dhaval Buch's link to Adani?

It has been allegedthat Buch and her husband Dhaval Buch had direct or indirect interest in Adani-related stocks or global funds. In its latest report, Hindenburg Research has accused the couple of having a stake in offshore funds that had artificially inflated shares of Adani Group companies in the past. Buch said she had invested in a global fund in 2015 that had Adani-linked stocks before she became a whole-time member of SEBI in 2017. That investment was redeemed in 2018, she said.

For their part, Madhabi Puri Buch and Dhaval Buch said in a statement, “SEBI has strong institutional mechanisms of disclosure and recusal norms as per the code of conduct applicable to its officers. Accordingly, all disclosures and recusals have been diligently followed, including disclosures of all securities held or subsequently transferred.”

In her statement, Madhabi Buch also said that after her husband was appointed as Senior Advisor to Blackstone Group, the company was added to SEBI's recusal list for her.

The point to note however is that her time in SEBI since 2017 overlaps with its probe into 13 offshore entities which held stake in Adani group companies, the IE reportquoted another former SEBI chief as saying, who cited public domain information.

SEBI under scrutiny: Who will watch the watchdog?

Being a government-appointed, independent regulator of Indian markets, SEBI is not further investigated by other government agencies like the Central Vigilance Commission (CVC). Notably, CVC can investigate probe agencies like the Central Bureau of Investigation and Enforcement Directorate, but not SEBI.

Former Chief Vigilance Commissioner Pradeep Kumar was quoted by IE as saying, “The SEBI is an independent market regulatory body and the CVC has a limited role in its supervision, if at all. There is certainly no superintendence of the CVC over the SEBI, say, as it has over the CBI and the ED.”

The SEBI board consists of members from the finance ministry and the Reserve Bank of India, the country's central bank, which in itself is seen as self-regulation. Also, SEBI orders can be further questioned at the Securities Appellate Tribunal, which is another oversight mechanism.

(With inputs from agencies)