Is Madhabi Puri Buch above government rules and code of conduct?

The controversies swirling around the Securities and Exchange Control Board of India (SEBI) and its chairperson Madhabi Puri Buch have raised questions which the government has stonewalled till now. The prime minister or the finance minister have neither asserted that the SEBI chief was allowed special treatment and privileges denied to other regulators; nor have they commented on the controversies or spoken about setting up an inquiry.

Ms Buch herself has evaded summons from the Public Accounts Committee (PAC), which is a joint parliamentary committee. The SEBI Board has met but refused to address the concerns and the questions. The controversy has eroded the credibility of SEBI, which is mandated to regulate the Indian capital market, one of the top five capital markets in the world with a market cap of five trillion US dollars, 10 crore investors and several lakh intermediaries besides the Mutual Funds.

SEBI has been issuing new and restrictive rules almost every month for businesses and intermediaries. As the cost of compliance has gone up, many businesses have actually been forced to shut down. However, SEBI’s chairperson and wholetime members appear to be following double standards by hiding behind a conflict code which has not only remained unchanged for the past 16 years but which is actually illegal.

The conflict code is illegal because according to the SEBI Act, points out columnist and journalist Sucheta Dalal, only the government has the authority to make service rules and avoidance of conflict codes; but the 2008 conflict code adopted by the SEBI Board was never referred to the union government in the first place.

Moreover, the service rules prescribed by the government need to be published in the central gazette and placed before the parliament. Once again, the 2008 code does not seem to have been notified in the gazette or placed before parliament, which make it virtually illegal.

While the union government has the right to relax the rules in certain cases, there is nothing in the public domain to suggest that such relaxation was made in the case of the present SEBI chief and why. What is more, the conflict code of 2008 specified that it was in addition to the rules in existence. In other words the code cannot dilute or undermine the rules mentioned in the SEBI Act.

The Act says that the chairman of SEBI and its wholetime members will not have any financial or other interests that are likely to affect their functioning as regulator. There cannot be any conflict of interest.

However, when the SEBI chief invests in shares of companies regulated by the Board or when a wholetime member lets out property to listed or unlisted companies and brokers, there is a potential conflict of interest that cannot be ruled out.

This is at the heart of the controversies around SEBI and sooner the government settles doubts at rest, and ensures compliance by the SEBI chief and wholetime members, more robust will be the authority and credibility of SEBI.

Ms Buch’s term as SEBI chief ends in March, 2025 when she may get an extension or decide to step down. Will the questions be answered in the next five months is the billion Rupee question that has no answer yet.