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The headquarters of the Securities and Exchange Board of India in Mumbai on April 19, 2023. | Photo credit: Reuters
the story So Far: According to a US-based newspaper, after more than a year and a half Hindenburg Research alleged corporate misconduct, Stock price manipulation In the case of violations and breaches of minimum public shareholding norms against Adani Group companies, the firm released another report late last Saturday. It argued that India’s stock market regulator, the Securities and Exchange Board of India (SEBI), is reluctant to take further action on the allegations of violations and breaches of minimum public shareholding norms against Adani Group companies. Offshore funds linked to “Adani money siphoning scandal” as its own chairman had conflict of interestWho have jointly invested in the same fund along with their spouse.
How has SEBI responded to the allegations?
SEBI Chairman Madhabi Puri Buch and her husband Dhaval Buch said in a statement last Sunday that their investment in the fund flagged by Hindenburg was made during their tenure as “private citizens” in Singapore, and about two years before they joined as SEBI members in 2017. The investment was prompted by Mr Buch’s closeness with the fund’s chief investment officer Anil Ahuja, who was his “childhood friend”, and was redeemed after Mr Ahuja stepped down from the position in 2018. They also cited a confirmation from Mr Ahuja that the fund in question never invested in any bonds, equities or derivatives of any Adani Group firm. Mr Ahuja was also a director of Adani Enterprises until 2017. On the US firm’s allegations that the Sebi chief owns two consulting firms in Singapore and India, and that she transferred 100% shares of the Singapore outfit to her husband in March 2022, Buch said these firms “immediately became inactive” upon her appointment with Sebi. The transfer of the Singapore entity to Mr Buch, who was said to have used both entities since 2019 for “his own consulting practice” with “major clients in Indian industry”, was disclosed to Sebi as well as tax authorities in India.
In a separate statement, Sebi said the relevant disclosures required in respect of holdings of securities and their transfers have been made by Ms Buch from time to time, and she has also “recused herself from matters involving potential conflict of interest”, apparently referring to allegations that the Sebi chief oversaw changes in regulations for real estate investment trusts (REITs) while her husband was an advisor to Blackstone, a conglomerate interested in this asset class.
SEBI also said that it has completed 23 out of 24 investigations conducted against the Adani Group under the supervision of the apex court and the final investigation is also close to completion.
What about other entities?
The Adani Group reiterated that its “overseas holding structure is fully transparent, with all relevant details regularly disclosed in multiple public documents”, and said Mr Ahuja was a nominee director of 3i investment fund in Adani Power (2007-08) and later, a director of its flagship Adani Enterprises until 2017. 360 One, a wealth management firm formerly known as IIFL Wealth that managed Hindenburg’s nominee fund IPE Plus Fund-1, said Ms Buch and Mr Buch’s holdings in the fund were less than 1.5% of its total inflows,
Have any new questions arisen since last Sunday’s clarification?
Yes. Hindenburg Research said Buch’s statement contains significant ‘admissions’ about the SEBI chief’s investments in a shadowy fund structure run by a person who was then a director of Adani, confirms a “massive conflict of interest” in the matter of SEBI’s investigation into funds linked to the Adani Group, and raises new questions. On the consulting firms owned by Ms Buch, Hindenburg pointed out that Ms Buch transferred her stake in Singapore-based Agora Partners Singapore to her husband “two weeks after her appointment as SEBI chairperson”, and continues to hold 99% of this Indian firm, which reported revenues of about $3,12,000 in the three years to this March, while she was SEBI chief. It asked whether some of Mr Buch’s consulting clients among them are entities that SEBI is tasked with regulating, and whether he would release a full list of such clients and details of his associations with both consulting firms. It asked, “Finally, will the SEBI Chairman commit to a full, transparent and public investigation of these issues?”
Read this also | With no solution for Hindenburg, Sebi looks the other way
There has been no response from SEBI or BUCH on these issues so far, while the Finance Ministry has maintained silence on the matter. While opposition parties continue to question the government over these allegations, fresh reports this week suggest that more light may be needed to dispel any lingering doubts about any arbitrariness in the administration of India’s booming securities markets. On Friday, Reuters The report said Ms Buch’s revenue from consultancy firms during her tenure at SEBI could be a potential violation of SEBI policy in place since 2008. The ‘Code on Conflict of Interest for Board Members’ states that a SEBI member should take all necessary steps to ensure that “any conflict of interest of his/hers does not materially affect any decision of the Board”. Further, a member should disclose interests that may conflict with his/her duties, and a whole-time member (including the chairman) shall not hold any other office of profit, nor engage in any other professional activity, which involves receipt of salary or fees.
a separate report Reference to the morning Suggested that Ms Buch did not recuse herself from a matter related to a firm called Essel Propack, in which a subsidiary of Blackstone had acquired a 75% stake in 2019.
What should I look forward to?
Eight months ago, the Supreme Court had expressed “confidence” in Sebi’s probe into the allegations against the Adani Group brought forth by Hindenburg early last year. Noting its power to transfer the investigation from an “authorised agency” to the CBI or set up a special investigation team, the court had said it was a rare power, which should be used only if there was strong evidence on record that the investigation was sound. Prima facie is tainted or biased and its continuation would result in “failure of justice”. One of the grounds highlighted by the court for transferring the investigation was when “allegations were levelled against top officials of the investigating agency, giving them an opportunity to influence the investigation”.
Ms Buch, the first private sector executive to head the market regulator, has a three-year term that ends next March, and is eligible for a fresh term. While more clarity on allegations about Sebi’s governance would clarify the situation, expediting the only pending probe into the Adani Group and swiftly closing 24 probes followed by enforcement proceedings resulting in a “speaking order” in the public domain may be the best way forward for the market regulator.
With inputs from T. Ashokamitran.
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