It is imperative that SEBI remains credible and is seen to adhere to the rules & compliance standards it imposes on all stakeholders.
India’s national interest is not served by defending one business group. With a market capitalization of several lakh crores of rupees and the savings of countless ordinary people riding on the market, it is imperative that SEBI remains credible and is seen to adhere to the rules and compliance standards it imposes on all stakeholders.

The manner in which India’s market regulator, the Securities & Exchange Board of India (SEBI), has gone about investigating the astounding rise in share prices of the Adani Group has been troubling for independent observers, even before Hindenburg Research released its explosive report in January 2023. This harks back to the tenure of another chairperson who is now associated with the industry group, but it was always assumed that SEBI’s reluctance was primarily due to political compulsions.

Having ignored the inexplicable price run-up, SEBI, under the present chief, framed its post-Hindenburg investigation primarily on short-selling activities. Even a novice investor understands that short-selling opportunities emerge only when stock prices soar far beyond a company’s fundamentals or future prospects. The explosive new ‘whistleblower’ documents released by Hindenburg Research on August 10 give a new twist to the issue and have led to a full-blown credibility crisis at the market regulator. They question chairperson Madhabi Puri Buch’s (MPB) integrity and disclosure with a set of facts and documents.

As one of the top five capital markets in the world and a key resource mobiliser for the Indian economy, restoring confidence in the independence of our regulatory mechanism is of paramount importance today. What we are witnessing instead is a textbook example of how not to handle such a situation. In the 36 hours since Hindenburg released its sensational allegations, there has been silence from the government and the finance ministry, which oversees SEBI. Instead, we have seen a series of statements from those involved, which raise more questions than they answer.

Late on Sunday night, SEBI decided that Hindenburg’s allegations “warrant an appropriate response”. When serious allegations are made against the chairperson and the regulator, an appropriate response cannot be anonymous. It is unclear who is taking responsibility for the press release or whether the issue was even discussed by the board or with the ministry. Exhibiting a complete lack of understanding of the situation, SEBI issued an unsigned press release listing its actions in the Adani matter and defending the chairperson without any semblance of inquiry. It claims that MPB had “recused herself in matters of potential conflicts of interest”; whether she did so in the Adani investigation is not answered.

Meanwhile, there seems to be a concerted attempt to question Hindenburg’s credibility and silence or discredit anyone attempting a serious analysis. Unless the government comes up with a nuanced response, these actions will only harm India’s credibility.

Despite the clarifications offered by various parties, many issues require further scrutiny. It is now an indisputable fact that MPB and her husband had investments in an offshore entity (Global Dynamic Opportunities Fund Ltd), which was part of the same nested entities used by Vinod Adani (Gautam Adani’s brother) that were under SEBI’s investigation. This warranted a clear disclosure.

SEBI has a precedent of the chairperson (CB Bhave) being ring-fenced from issues, even when they did not involve personal investments. Even if the investment was redeemed, MPB ought to have recused herself and created a board-monitored committee, perhaps comprising the three whole-time members, to handle the Adani investigation, in consultation with the government. Since this did not happen, it raises questions about MPB’s two meetings with Gautam Adani while the investigations were ongoing. No disclosure or recusal happened even when the matter reached the Supreme Court and an expert committee was appointed, specifically to examine if there were regulatory lapses in investigating the Adani Group.

MPB’s dealings with Trident Trust Company are perplexing. On the one hand, a letter from her husband Dhaval Buch states that their “accounts be registered solely in his name”, yet the email registered to the account remains that of MPB, who continues to receive investment details. Why did she send a redemption request from her email in 2018 when the funds were solely held by Dhaval? In India, this would have fallen foul of compliance requirements and attracted penal action by SEBI. It now raises red flags about the real ownership of funds.

MPB and her husband have confirmed their holdings in two separate consultancy companies. MPB says she transferred her entire holding in the Singapore entity, Agora Partners, to her husband, who became a 100 per cent shareholder in March 2022. This was two weeks after being appointed chairperson in her second stint at SEBI. She continues to hold a 99 per cent stake in the India-registered Agora Advisory Pvt Ltd. While the couple says the two entities “became immediately dormant on her appointment with SEBI” in 2017, Hindenburg has released documents showing that the Indian entity is active and generating revenue.

The clarificatory statement by MPB and Dhaval itself seems contradictory. It says that Dhaval started his own consultancy practice through these companies after retiring from Unilever. This confirms that the company is not dormant, so it is unclear if ‘prominent clients in the Indian industry’ that it does business with are SEBI-regulated entities, since the SEBI chairperson remains a 99 per cent owner of the firm.

Another disclosure by 360 One Wam Ltd (formerly IIFL Wealth Management) revealed investment details of MPB and her husband, raising a crucial question posed by MP Mahua Moitra: if foreign portfolio investment records down to the last natural person were made available so quickly by one entity, why did SEBI “hit a wall” in its investigation, as noted by the Supreme Court?

An independent, time-bound investigation leading to credible action, one way or another, alone will restore SEBI’s credibility. Rather than a politically motivated joint parliamentary committee, a suggestion by former Revenue Secretary EAS Sarma seems a better option. Since the apex court has not yet closed the Adani cases, Sarma suggests that the Chief Justice could nominate a senior member of the judiciary to head an inquiry commission under the Commissions of Inquiry Act, 1952.

India’s national interest is not served by defending one business group. With a market capitalization of several lakh crores of rupees and the savings of countless ordinary people riding on the market, it is imperative that SEBI remains credible and is seen to adhere to the rules and compliance standards it imposes on all stakeholders.
(The author is a senior journalist)