Hindenburg Research, in the newest round of revelations on 10 August, took their battle with Adani to the turf of SEBI Chairperson Madhabi Puri Buch, effectively raising doubts about her independence, impartiality and locus standi to investigate the Adani companies.
Hindenburg has made four direct allegations against her.
The investment she and her husband Dhaval Buch made in an off-shore vehicle, owned and controlled by the Adani brothers and executives, compromises SEBI’s ability to investigate these very funds.
The appointment of Dhaval Buch as a senior advisor in Blackstone impacts her freedom to make policies and regulations relating to real estate investment trusts (REITs).
The most damaging of it all is the third and the fourth allegation of her owning a 100 percent stake in a consulting firm in Singapore and a 99 percent stake in an Indian consulting firm, from the time she became a whole-time member of SEBI, and at the very least, the Indian firm continuing to do business and earn incomes despite her occupying the position of SEBI chairperson.
Madhavi and Dhaval Buch have issued statements alleging character assassination and providing certain information relating to these allegations. Significantly, they have not denied the facts of any of the four allegations while arguing that Ms Buch had made adequate disclosures and recused herself from REIT-related matters.
The allegations against her are indeed serious. The investigation against the Adanis flowing from the Hindenburg report in January 2023 has still not been completed by SEBI despite the Supreme Court deadlines.
Are these investigations compromised? How could she continue to own the consulting firms despite being a full-time member/ chairperson of SEBI? Can she continue to discharge the duties of chairperson in the prevailing circumstances?
Madhabi Buch Conducted Herself Very Well in Her Job
Madhabi Buch was already a whole-time member of SEBI when I joined the Department of Economic Affairs (DEA) [the administrative department in charge of the SEBI Act and other securities law] as Secretary and also as SEBI Board member in July 2017.
Ms Buch always came out as a highly knowledgeable person about the finance industry and the markets. She was very well prepared for the issues at hand and offered solutions. Her contributions were highly valuable in many important issues — handling the foreign portfolio investors (FPI) rules and regulations, beneficial ownership matters, building market stability systems, the account aggregator framework, and crypto-currency policy, amongst others.
Though I left the government in 2019, I found hers as the most deserving appointment as SEBI chairperson in 2022. Albeit observed from a distance, Madhabi Buch always seemed to be completely in control and competently, professionally and logically handled all matters, including post-SEBI Board press meetings, and even regulatory and market issues in conferences.
There have been no allegations of corruption, favouritism, mismanagement, or lack of professionalism against her in about the seven years she has been in SEBI, as far as I know. In my judgement, she has conducted herself very well as chairperson of SEBI.
Allegations Against Adani Not Properly Investigated
Hindenburg Research made many serious allegations in January 2023 against the Adanis and their companies, with Adani Enterprises at the top of the heap. More than a year and a half have gone; and yet, the accusations have not been fully investigated by SEBI under Ms Buch's charge.
There was indeed a serious prima facie case of the Adani group ramping up the valuations of many of the group companies artificially, including that of Adani Enterprise, which was on the verge of launching a large public issue at an over-stretched premium. There were also credible leads suggesting misuse of foreign investment vehicles to satisfy the minimum public shareholding norms and manipulation of stock prices using off-shore non-transparent vehicles.
These accusations needed to be investigated by SEBI on its own. The Supreme Court too, on 1 February 2023, ordered SEBI to investigate the allegations and reiterated these directions on 2 March 2023. SEBI seemed to be dragging its feet and did not complete the investigations in the time frame envisaged by the Supreme Court. On 17 May of the same year, the Supreme Court had to extend the time until 14 August 2023.
As SEBI still dragged on the investigation, the Supreme Court finally ordered on 3 January 2024 to complete the investigations in three months. Yet, SEBI has not completed the investigation until now.
On 11 August this year, SEBI, in response to the fresh Hindenburg allegations, said that only one out of the twenty-four allegations to be investigated was pending. Still, no time frame for completing that investigation was indicated.
Why has SEBI not been able to complete the investigations? Is it on account of some soft corner that the chairperson has on account of the investment relationships she had with Adani's off-shore vehicles?
At one stage, in a report to the Expert Committee, appointed by the Supreme Court, SEBI took an alibi that it had run into a wall with respect to obtaining information from the off-shore funds. Is it really difficult for SEBI to get the requisite information from these off-shore vehicles about their beneficial owners, while they continue to do business in India?
Madhabi Buch’s Position Has Become Untenable
The four allegations against Madhabi Buch have weakened her legal and moral authority to continue as SEBI chairperson. These allegations will also lead to people commenting on and demanding further disclosures, which will further distract her.
The two allegations relating to her owning the two consulting firms — one in Singapore and another in India — are the most damaging and will prove quite sticky. There are many questions relating to her ownership, investment, and income from these two consulting firms.
What kind of disclosures did she make to SEBI and the government in 2017 when she joined as whole-time member? Did she disclose that she owned a 100 percent stake in the Singaporean firm and a 99 percent stake in the Indian firm? Why did she continue owning these two firms while accepting full-time employment? Why were these not closed or transferred to her husband or to any third party before she joined SEBI?
There will be questions to SEBI and the government as well. What did SEBI and the government do about the disclosures if Madhabi Buch did disclose her ownership and the firms’ continuing business? Why did SEBI and the government not ask her to dissociate herself from these two firms, knowing fully well that one can't continue to be running a business while being in full-time government employment?
There is clear evidence of at least the Indian firm earning significant incomes. The assertion in the public statement made by Madhabi Buch that these firms became dormant when she joined SEBI as a member has proven to be false with the returns filed with the Registrar of Companies showing substantial incomes since 2020-21.
Ms Buch will have to provide many more details. What kind of work did these firms do between 2017 and now? Did she do some work, as some of the evidence put forth by Hindenburg suggests? Who were the clients? Was there any proportional relationship between the services rendered and the payments received?
Investigation Against the Adanis Will Create Conflict of Interest
The business relationship with the two consulting firms has made her continuance as SEBI chairperson quite untenable. The fact that SEBI has not completed investigations against Adani levied one and a half years back will also come into sharper focus now.
How will the Supreme Court, which asked SEBI to investigate these allegations in the first place, continue to trust it while Madhabi Buch continues to be its chairperson? Will she, as chairperson, have legitimacy in this matter? Can she expedite the investigations and be seen to do a fair job now?
The findings to be submitted by SEBI will also be seen by many as compromised by her relationship with the Adanis. She may not really be happy continuing as the chairperson of SEBI in the current circumstances.
Her independence and professionalism are under a cloud now. In the circumstances, the best course of action for Madhabi Buch is to resign.
(The author is former Economic Affairs Secretary and former Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)