Hindenburg's August 10 report claims that SEBI Chairperson Madhabi Puri Buch and her husband Dhaval Buch had stakes in an offshore fund allegedly linked to the Adani Group, raising the issue of conflict of interest. The report also alleges the appointment of Dhaval Buch in Blackstone, as Senior Advisor, which has an interest in Indian Real Estate Investment Trusts (REITs) and SEBI’s push for REIT as an investment product as well as policy tweaks under Madhabi’s leadership at SEBI.

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SEBI has denied these charges, stating that it has adequate internal mechanisms for addressing issues relating to conflict of interest, including a disclosure framework and a provision for recusal.

In this context, let's understand what exactly the Code on Conflict of Interests states for SEBI’s board members including its chairperson:

  • The Code was approved in December 2008 when CB Bhave was the chairman of SEBI. The code explains the rationale for such mechanism, which is "to ensure that it conducts 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 mainly emphasises conflict of interest and disclosures.
  • The general principles of the code say that a member will take all steps necessary to ensure that any conflict of interests, to which they may be subjected to, does not affect any decision of the Board. The member is also required to disclose interests that may conflict with their duties. It also states that members will not exploit to their personal advantage, any personal or professional relationship with regulated entities or any employee of such entities. No member will hear or decide any matter if there is a conflict of interest and includes the SEBI chairperson, as per the Code.  
  • The Code also states that if there is a possibility of conflict concerning the board meeting agenda, then a member directly or indirectly interested in any matter coming up for consideration at a meeting of the Board will disclose the nature of his interest at the meeting. Also, the member should not take part in any deliberation or discussion of the Board concerning such matter unless sought by the Board.
  • The Code has also prescribed a mechanism for disclosure of holdings of securities. The code says a member will disclose their holding of shares and holdings of shares of their family within 15 days of joining, and also disclose their holding of shares and holdings of shares of his family at the end of each financial year within 15 days of the close of the financial year.  A whole-time member shall disclose substantial transactions by themselves and their family within 15 days of such transaction. The substantial transaction for this purpose means transactions of at least 5,000 shares or shares of a value of at least Rs 1,00,000. Board members are also prohibited from dealing in securities of a company listed on a stock exchange based on insider information which they get to know while dealing with the case.
  • The procedure for managing the conflict is also prescribed, a member shall disclose a conflict of interests at the earliest possible opportunity, a member shall seek determination from the Chairman if he/she doubts whether there is a conflict of interests or not, the Chairman shall seek determination from the Board if he/she doubts whether there is a conflict of interests or not, If the Chairman or the Board, as the case may be, determines that there is a conflict of interests, the Member or Chairman shall refrain from dealing with the particular matter.
  • It also mandates the members to disclose any post, other employment, or fiduciary position which a member holds, or has held in the past five years in connection with any regulated entity; any other significant relationship, including a professional, personal, financial, or family relationship held in connection with a regulated entity; and any honorary position, by whatever name called, in any organisation.
  • However, any member nominated by the Government of India or the Reserve Bank of India is exempted from filing the disclosures under if similar disclosures are being made by such Member to the parent organisation as per their code of conduct or service regulations and confirmation to this effect is submitted.
  • According to the SEBI statement, relevant disclosures required in terms of holdings of securities and their transfers have been made by the Chairperson from time to time. The chairperson has also recused herself in matters involving potential conflicts of interest.
  • The code says that disclosures by the Chairman may be scrutinised under the authority of the Board with due regard to Chairman’s responsibility.