SEBI to Challenge Court Order Against Former Chief Madhabi Puri Buch and Officials

Image credits: ANI, IANS

The Securities and Exchange Board of India (SEBI) has stated that it will challenge a court order that directs the registration of a First Information Report (FIR) against its former chairperson, Madhabi Puri Buch, and five other officials. The order, issued by a special court, is in connection with alleged stock market fraud and regulatory violations. The court has ordered the Anti-Corruption Bureau (ACB) to file an FIR under relevant provisions of the Indian Penal Code, Prevention of Corruption Act, SEBI Act, and other applicable laws. The judge has also asked for a status report within 30 days, indicating that the court will monitor the probe.

The allegations against the former SEBI officials disclose a cognisable offence, making an investigation necessary, according to the special court judge. The inaction by law enforcement agencies and SEBI "necessitates judicial intervention," the judge said. The SEBI, however, contends that the court was acting on a "frivolous" petition and had not given the board a chance to present its side. The SEBI has argued that the officials named were not holding their respective positions at the time concerned, and the court allowed the application without issuing any notice or granting any opportunity to SEBI to place the facts on record. The regulatory body has also called the complainant a “frivolous and habitual litigant,” saying that his previous applications had been dismissed by the court.

The case involves a Thane-based journalist, Sapan Shrivastava, who had filed a complaint against senior officials of the SEBI and the Bombay Stock Exchange (BSE), alleging that the market regulator permitted the listing of a company on the BSE even though it was not in compliance with the SEBI Act, 1992. The complainant alleged that the company was listed fraudulently in 1994, with the active connivance of regulatory authorities, particularly SEBI. The SEBI officials had failed in their statutory duties, and the listing facilitated market manipulation and enabled corporate fraud, according to the complainant. The BSE has also responded to the order, saying that the alleged officials did not hold their respective positions at the time of the alleged listing of the company and were not connected with the company at all.

The SEBI has stated that it "would be initiating appropriate legal steps to challenge this order and remains committed to ensuring due regulatory compliance in all matters." The BSE has also said that it is initiating “necessary and appropriate legal steps in this regard” and called the application “frivolous and vexatious in nature.” The former SEBI chairperson, Madhabi Puri Buch, had completed her three-year tenure on March 1. During her tenure, she made significant strides in areas like faster settlements in equities, enhanced FPI disclosures, and increasing mutual fund penetration through Rs 250 SIP. However, her last year in office was marked by controversy. The other officials against whom the court has ordered the registration of FIRs include BSE Managing Director and Chief Executive Officer Sundararaman Ramamurthy, its then chairman and public interest director Pramod Agarwal, and SEBI's whole-time members Ashwani Bhatia, Ananth Narayan G, and Kamlesh Chandra Varshney.

The development has significant implications for the financial sector, as it highlights the need for greater transparency and accountability in regulatory bodies. The case is likely to be closely watched by market participants and regulatory experts, as it has the potential to set a precedent for future cases involving alleged regulatory lapses and corruption. The SEBI and BSE have reiterated their commitment to ensuring due regulatory compliance and have stated that they will take all necessary steps to defend themselves against the allegations. The court's order has also sparked a debate about the role of regulatory bodies in preventing market manipulation and corporate fraud, and the need for more effective mechanisms to address these issues.