Citing ‘whistleblower documents’, US-based short seller Hindenburg Research has levelled allegations of conflict of interest against the chairperson of India’s capital markets regulator, the Securities and Exchange Board of India (SEBI). SEBI has been investigating charges of stock manipulations and accounting fraud made against the Adani Group by Hindenberg in January 2023.
In its latest report, the US based short seller has stated that it “suspects SEBI’s unwillingness to take meaningful action against suspect offshore shareholders in the Adani Group may stem from SEBI Chairperson Madhabi Puri Buch’s complicity in using the exact same funds used by Vinod Adani, brother of Gautam Adani.”
The SEBI chairperson has strongly denied the allegations of conflict of interest raised by Hindenburg. SEBI also released an unsigned press statement, the main defence in which is that Buch made all relevant disclosures required in terms of holdings of securities and their transfers, and recused herself in matters involving potential conflicts of interest.
The credibility of the regulator is at stake. The controversy has drawn attention to the mechanisms governing issues of conflict of interest with respect to board members of SEBI.
The ‘Code on Conflict of Interests for Members of Board’, adopted by the SEBI in December 2008, provides a framework of disclosures to ensure that the Board conducts itself “in a manner that does not compromise its ability to accomplish its mandate or undermine the public confidence in the ability of Member(s) to discharge his responsibilities”. The code requires extensive disclosures and even provides a procedure for the public to raise conflict of interests.
The code defines ‘conflict of interests’ as any personal interest or association of a member which is likely to influence the decision of the Board in a matter, as viewed by an independent third party. It requires members to disclose the shares held by them and their family, and also any interests which may conflict with their duties. Whole Time Members (including the chair) are required to disclose transactions above 5,000 shares or shares of a value of above Rs 1,00,000 by them and their families within 15 days of such transaction. A member is also required to disclose any post, other employment or fiduciary position which they hold, or have held in the past 5 years in connection with any regulated entity.
However, there is a catch. Point 14 of the code states that these disclosures shall be kept confidential and not be disclosed, except in certain circumstances. This provision is tailor-made for potential misconduct and cover-up by bad actors. It is especially concerning given the circularity of the scrutiny process laid down under the code, giving rise to the possibility of quid pro quo arrangements – the SEBI chairperson determines if a member of the board has a conflict of interest and the board determines if the chair does.
There can be no justification for keeping under wraps disclosures meant to rule out potential or actual conflicts of interest and other forms of ethically unacceptable conduct. After all, sunlight is the best disinfectant.
Unfortunately, this malaise is not limited to SEBI. There is need for urgent reform in norms governing public disclosure of conflicts of interest and assets/liabilities of public functionaries. In a country like ours, where corruption is rife at all levels – India slipped eight places to rank 93 in the 2023 Corruption Perception Index. Putting these disclosures in the public domain would serve tremendous public interest.
Regrettably, recent years have seen a backslide even where some progress was made in terms of infusing transparency in this sphere. A significant provision of the Lokpal and Lokayuktas Act, enacted in 2014, was the statutory requirement for public disclosure of the assets and liabilities of public servants, including those of their spouses and dependent children. However, in 2016, much before members of the Lokpal were even appointed, the law was hurriedly amended to remove this statutory requirement. It was replaced with a clause empowering the Union government to make rules to determine the form and manner of disclosures.
Peoples’ endeavours to use the Right to Information (RTI) Act to seek access to such disclosures have also hit a wall. The Supreme Court, which gave a seminal judgement in 2002 directing public disclosure of the assets and liabilities of election candidates and their families, has, in recent rulings, restricted the scope of disclosure of similar information of public servants under the RTI Act. In the last decade, in various judgements on the RTI law, the Supreme Court has ruled that disclosure of information related to asset, liabilities and performance evaluations of public servants, all come within the scope of the privacy exemption, and conditional access can be obtained only if larger public interest justifies it.
Public access to such disclosures is likely to get even more challenging once the Digital Personal Data Protection (DPDP) Act comes into effect. The law has amended the RTI Act to exempt all personal information from disclosure.
Public disclosures by officials of oversight bodies play an important role in ensuring probity and allowing public scrutiny. They facilitate whistleblowing in cases of wrongdoing and corruption, ensuring accountability of institutions and their functionaries.
The current credibility crisis faced by SEBI is an opportunity to turn the tide firmly in favour of greater transparency by reforming relevant codes, laws and practices to ensure that disclosure statements of assets, liabilities and conflict of interest of public servants are made publicly available. The Supreme Court’s 22-year-old judgment directing disclosure of assets and liabilities of election candidates said,”…there are widespread allegations of corruption against the persons holding post and power. In such a situation, question is not of knowing personal affairs but to have openness in democracy for attempting to cure cancerous growth of corruption by few rays of light.”
Anjali Bhardwaj and Amrita Johri are transparency activists associated with Satark Nagrik Sangathan and the National Campaign for Peoples’ Right to Information.
