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Ever since Hindenburg made certain allegations against SEBI (Securities and Exchange Board of India) Chairperson Madhabi Puri Buch on 10 August, more and more questions have been raised about her conduct, independence, and integrity.
From being accused of having an investment relationship with an off-shore entity indirectly controlled by the Adanis, she has, by now, been accused of taking unjustified salary payments and ESOP (employee stock ownership plan) benefits from ICICI Bank and off-market rents from a company part of the Wockhardt group.
The allegations acquire greater gravity as all three entities — the Adanis, ICICI Bank, and Wockhardt — are regulated by SEBI (which is under her watch).
The muck is growing by the day. We don’t know what will come out tomorrow.
While Ms Buch has accused Hindenburg of character assassination, she has remained uncharacteristically silent on the recent allegations.
SEBI Chairperson Integrity Should Be Beyond Doubt
The rules require the SEBI chairperson and members to be "persons of ability, integrity and standing."
The SEBI chairperson can be removed from her office if "convicted of an offence, which, in the opinion of Central Government, involves a moral turpitude" or has "so abused his position as to render his continuation in office detrimental to the public interest."
She has not been convicted of any such offence. The central government has the responsibility to make a determination whether her continuation in office is detrimental to public interest. It seems hardly inclined to do so.
The SEBI chairperson can, of course, resign by giving three months’ notice in writing.
Should she resign for not upholding the integrity, reputation, and independence of the institution?
Hindenburg Allegations are Serious
I wrote an opinion piece on 14 August: Hindenburg v/s SEBI: The Best Course of Action for Madhabi Buch is to Resign.
No disclosures or explanations have emerged since then from the government, SEBI or Madhabi Buch, to revise the conclusions echoed in the above article.
She did have an improper investment relationship with an Adani Group off-shore entity. Her excuse before the Expert Committee, that SEBI had run into a wall in getting information from the off-shore entity in which she had made an investment, makes her claim quite hollow.
The Indian consulting firm owned by her did receive crores of rupees in payments, until 2022 at least. There are many lingering questions. Who worked on these consulting projects? Who were the clients? What were the gross receipts? How much was paid to the employees?
Ms Buch still remains highly vulnerable and suspect in the Hindenburg allegations.
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ICICI Salary, ESOP and TDS Payments Shrouded in Mystery
On 2 September, the Congress party alleged that Ms Buch had drawn Rs 12.63 crore as salary from ICICI Bank during 2017-18 to 2020-21 (some payments from ICICI Prudential as well) when she was working as a whole-time member of SEBI.
In addition, it was alleged that she received Rs 2.84 crore as ESOP benefits on which Rs 1.10 crore of tax deducted at source (TDS) was also additionally paid by ICICI Bank.
Ms Buch had voluntarily retired from ICICI Bank in October 2013, many years before the alleged ‘salary payments’, ESOP benefits, and TDS payments were made.
On the face of it, the allegations raised serious suspicions, more so because quite a few regulatory adjudications were made in the matters of ICICI Bank during the period she was SEBI's whole time member. SEBI also granted permission for delisting ICICI Securities under her watch.
Ms Buch and SEBI decided to shed no light on the allegations. No information about her participation in or recusal from ICICI Bank-related matters has also been provided. Instead, ICICI Bank made a regulatory filing in the stock exchanges.
The bank did not dispute the fact that payments were made, nor did it question its timings or the amounts involved. The bank made only a bland statement, “ICICI Bank or its group companies have not paid any salary or granted any ESOPs to Ms Madhabi Puri Buch after her retirement, other than her retiral benefits.”
On ESOPs, an ICICI Bank filing stated that "under the Bank’s ESOP rules, the ESOPs vest over the next few years from the date of allotment. As per the rules existing at the time of her ESOP grant, employees including retired employees had the choice to exercise their ESOPs anytime up to a period of 10 years from the date of vesting."
ICICI Bank’s ESOP rules have comprehensive provisions relating to the grant of ESOPs, conditions, and the time limits for accepting the grant, vesting of ESOPs, exercise price, time period for exercising option, acceptance of grants or exercise of vesting option by those who leave the employment of the company, including those who voluntarily retire, lapse of grants etc.
Total payments of Rs 12.63 crore were allegedly made under the salary head. A separate payment/benefit of Rs 2.84 crore was made on the exercise of the ESOP option. The payments of Rs 12.63 crore, therefore, prima facie, were not for ESOPs. What were these payments for? Retiral benefits? What kind of retiral benefits were paid after four to eight years of voluntary retirement? Unless full disclosures are made and the details are provided, receipts of the ‘salary payments’ will remain seriously suspect.
There are more questions about the benefits worth Rs 2.84 crore on the exercise of the ESOP option. Does this value represent the difference between the market price and the exercise price of ESOPs? How was the exercise price determined in her case? Was any undue concession made to her? Was any relaxation given to her in terms of the exercise period?
The ICICI filing said nothing to answer these questions. It ended up hiding more than it revealed.
A TDS payment on ESOP benefits is certainly not permissible under the ESOP rules and tax laws. The ICICI statement is silent on this. Was the gross ESOP benefit inclusive of TDS or was TDS paid over and above the value of the ESOP benefit?
The ICICI Bank statement does not help Buch or the bank. The payments raise serious doubts about the ‘integrity’ and ‘objectivity’ of Ms Buch in accepting payments from ICICI Bank while making many regulatory determinations relating to the entity.
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Wockhardt Muddies the Waters
Three days after the ICICI Bank-related allegations, the Congress party also alleged that a company of the Wockhardt group named Carol Info Services Limited made payments of Rs 2.16 crore to Ms Buch during 2018-2024 as rent.
Again Ms Buch opted for remaining mum. Instead, Wockhardt filed a statement with the stock exchanges relating to “certain allegations pertaining to payment of rent by Carol Info Services Limited and its connection with certain orders passed by SEBI in relation to the company”.
The statement asserted, “We categorically deny these allegations and state that these allegations are completely baseless and misleading. The company has acted and continues to act in compliance with the applicable laws.”
The most critical aspects relating to the allegations:
Whether the rental payments as alleged were made
Whether these rental payments were off-market, ie, the rents paid were higher than the market rate
Wockhardt chose not to address any of these issues. As it did not deny the amount of rental payments, it can be accepted that the alleged rents were indeed made. The absence of any comment about the reasonableness of rental payments only deepens the suspicions.
Brazenness Will Hurt Ms Buch, SEBI and Government
Ms Buch seems to have decided to stick it out for the present by ignoring whatever allegations are made against her.
The government seems to have also decided to brazen it out by maintaining complete silence on the matter. Following this approach, SEBI's board has also abdicated its responsibility and seems to have decided to not bother itself with the matter.
The allegations are serious. The facts need to come out. The questions need to be answered.
If Ms Buch, the SEBI Board, and the government continue with their present approach, suspicions will only grow. The credibility of SEBI as an institution will suffer. Investors will lose trust in the securities markets.
The sooner the trinity — Ms Buch, the SEBI Board and the government — sheds light on the matter and provides answers, the better.
Ms Buch stands to suffer the most personal damage. It is reported that the Public Accounts Committee (PAC) might question her. She is bound to face considerable embarrassment.
She should make full disclosures and offer herself to the scrutiny of an independent investigation if she believes she has done no wrong. And if there are any chinks in her armour, the most honourable course for her is to step down.
(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.)
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