Questions the PAC is keen to ask SEBI chairperson Madhabi Puri Buch

The three-year term of SEBI chairperson Madhabi Puri Buch is to end in March 2025. Since January 2023, however, she has been in the eye of the storm that followed disclosures by New York-based short seller Hindenburg Research about Adani stocks. So far, she has avoided answering key questions about conflicts of interest.

When Hindenburg Research this year pointed a finger at her and alleged that she and her husband had been trading in shares and investing in offshore and opaque funds, say in Mauritius, used to buy Adani shares, SEBI in a press note claimed that she had complied with the requirements of disclosure and recusal prescribed in SEBI’s Code of Conflict of Interest (Conflict Code) voluntarily adopted in 2008 by the SEBI board.

Since all other whole-time members and chairpersons were employees of the Government of India and came from services such as the IAS and IRS etc, they were covered by stringent codes of conduct covering government employees.

Buch, the first private sector appointee as chairperson since 2008, however, appears to have adhered only to the 2008 code adopted by the board, which is far less stringent than government service rules and was never backed by any legislation or notified in the gazette. With only the government of India entitled to prescribe codes of conduct for the SEBI chairperson, whole-time members, and officials, can Buch get away by claiming to have complied with the 2008 code?

Why are whole-time members of SEBI and most SEBI officials not allowed to hold or trade in shares that may lead to conflicts of interest but not Buch? This is one of the several tricky questions that the PAC is expected to pose to her, besides questions on SEBI’s clean chit to allegations that the Adani Group had manipulated share prices and flouted SEBI rules.

Buch had sought exemption from personal appearance before the PAC (parliamentary accounts committee), a request which was turned down. She then agreed to appear before the PAC on 24 October but backtracked barely two hours before the meeting citing personal exigencies.

PAC chairman K.C. Venugopal told the media that two hours before she was to appear, Buch communicated at 9.30 am that owing to a ‘personal exigency’, she was unable to travel to Delhi. Officials from the finance ministry, the income tax department and SEBI were present in Parliament to appear before the PAC.

However, sensing that if the officials were allowed to answer questions asked by the PAC, it would be difficult to insist on Buch’s presence to answer the same questions, Venugopal postponed the meeting to a future date, when he hoped Buch would be present.

The question is if she can successfully avoid appearing before the PAC. The government and the finance ministry can easily ensure her compliance, but have shown no interest whatsoever. 

In a video blog, noted business and financial journalist Sucheta Dalal pointed out that no regulator other than SEBI, such as the Reserve Bank of India, or pension and insurance regulators etc. appears to have its own code of conduct governing potential conflicts of interest. They are all governed by government rules of conduct instead. Why is SEBI then an exception?

While whole-time members of SEBI and its past chairpersons, who came from within the government, were not allowed to trade in shares to avoid conflicts of interest, how did the finance ministry allow Buch to do otherwise?

While she has defended her conduct by claiming that she had transferred her shares to her husband, government rules prohibit parents, spouses, children and even in-laws from holding shares which can lead to conflicts of interest for SEBI’s whole-time members. SEBI’s own rules for brokers, influencers and intermediaries are more stringent and restrictive than those Buch allowed herself.

A Lok Sabha bulletin dated 2 September had notified that the PAC had picked 160 subjects for deliberation during its tenure. The subjects were decided at the first meeting of the PAC held on 29 August. The 22-member committee has 12 members from the BJP-led National Democratic Alliance (NDA) and eight Opposition MPs, including four from the Congress.  

The panel has picked five subjects for suo motu investigation, including “performance review of regulatory bodies established by Act of Parliament” and “levy and regulation of fees, tariffs, user charges etc. on public infrastructure and other public utilities”. Several regulatory bodies can be reviewed under the first subject, including bodies like SEBI and the Telecom Regulatory Authority of India (TRAI).

The second subject, 'levy and regulation of fees, tariffs, user charges etc. on public infrastructure and other public utilities', will bring highways, railway stations and airports under focus. The Congress had alleged that the government, and especially Prime Minister Narendra Modi, favoured the Adani Group in management of airports across India.

Currently seven airports — Chhatrapati Shivaji Maharaj International Airport, Mumbai; Sardar Vallabhbhai Patel International Airport, Ahmedabad; Chaudhary Charan Singh International Airport, Lucknow; Mangaluru International Airport; Jaipur International Airport; Lokpriya Gopinath Bordoloi International Airport, Guwahati; and Thiruvananthapuram International Airport — are managed by the Adani Group. The group’s airport business is managed by Adani Airport Holdings Ltd, and it is said to handle 23 per cent of India’s total passenger traffic.