SEBI is playing by the Buch

The new chairperson of the Securities and Exchange Board of India (SEBI), Madhabi Puri Buch, is proving to be a tough regulator in her very first month after taking charge as the first woman chairperson of the country’s stock market regulatory body.

In a circular on March 30, SEBI made it mandatory for companies to seek shareholder approval for all material related party transactions (RPT).

Invoking regulation 23(8) of the listing obligations and disclosure requirement regulations, SEBI has now specified that “all existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations.” Besides, an RPT, which has been approved by the audit committee of a company prior to April 1, 2022 which continues beyond that date and becomes material as per the revised materiality threshold of ₹1000 crore, or 10 per cent of the annual consolidated turnover, whichever is lower, will also have to be placed at the first general meeting after the April 1 date.

SEBI’s stand on RPTs comes despite strong lobbying by industry chambers like FICCI and CII which wanted the absolute amount threshold removed or increased. By sticking to its guns on RPT, Buch has clearly demonstrated she is not going to relent on matters which, in SEBI’s view, are of serious importance in connection with corporate governance. In fact, the SEBI circular clearly spells out what the regulator’s view on corporate governance is. It says: “Transparency, accountability and shareholder empowerment are the bedrock of robust corporate governance. Listed entities, therefore, shall ensure to comply with the spirit of the law and endeavour to provide relevant and detailed information to enable and empower shareholders for taking an informed decision.”

Buch’s appointment to the top post at the country’s market regulator comes at a time when serious doubts have been raised around SEBI’s role in allowing the National Stock Exchange-Chitra Ramkrishna fiasco to fester, where the regulator has been generally accused of acting late. By appointing Buch, a former banker who had a long stint at ICICI Bank and was mentored by the then CEO Kundapur Vaman Kamath, the government has moved away from the usual stance of having bureaucrats heading regulatory bodies and rooted for a professional instead. Those who know the 56-year-old Buch tell me that behind the affable exterior lies an administrator with steely resolve, someone who is very comfortable with technology and keen to experiment with new ideas. This tech-savviness will also come in handy for SEBI as India’s equity markets go through a major transformation with tech-driven trading at its core. It also helps that Buch has had an over four-year tenure as a wholetime member on the SEBI board.

Former SEBI chairman Meleveetil Damodaran, who is now chairman of Excellence Enablers, a corporate governance think tank, tells me that one of the biggest challenges before Buch would be to ensure investor protection in the truest sense. The question before her would will be whether SEBI is doing enough on this. Senior SEBI executives need to be tasked with giving a serious push to investor protection and education, and this cannot be undertaken with a tick-the-box approach. Buch will also need to up SEBI’s game on surveillance, market intelligence, investigation and enforcement. SEBI-watchers and those who have served in the regulatory body earlier agree that the quality of investigation at SEBI leaves much to be desired. The Securities Appellate Tribunal routinely throws out SEBI orders when they are challenged, and this does little to instil fear in the minds of those market players who are used to bending the rules.

Former SEBI executive director J.N.Gupta, who was in the investigations department earlier and now runs proxy advisory firm Stakeholder Empowerment Services, is of the opinion the markets regulator also needs strong legal counsel to prepare cases which are foolproof. There could also be merit in SEBI looking at enrolling the services of retired officials from the organisation who have the passion and verve to ensure the regulator gets the best from their vast experience and prepares investigation reports which cannot be challenged easily.

Buch clearly has much to do to set things right at SEBI, particularly after the battering the regulator’s image has received in the wake of l’affaire NSE. The big task before her would be to ensure the NSE scandal does not impact the morale of SEBI’s rank and file. At the same time, she needs to ensure that the regulator keeps pace with the technological changes sweeping through the capital markets, and that it is feared by those prone to market misdemeanours.

Recently, SEBI also ordered that investors who participated in the ₹4,300 crore follow-on public offer of Ruchi Soya be given the option to withdraw their bids after unsolicited messages pushing the issue were brought to its notice. This action—and the one on RPTs—would go a long way in establishing Madhabi Puri Buch as a no-nonsense, tough regulator committed to protect investors, which is SEBI’s primary role. The new SEBI chairperson has started off well. She will now need to build on this solid start.

The author is Editor, Business Today