Bombay High Court Halts FIR Against Former SEBI Chief Madhabi Puri Buch Amid Allegations of Stock Market Fraud

In a significant legal development, the Bombay High Court has stayed a special court’s directive to file a First Information Report (FIR) against former Securities and Exchange Board of India (SEBI) Chairperson, Madhabi Puri Buch, and five other officials. This order pertains to allegations of regulatory violations and stock market fraud dating back to 1994.

FIR – Background of the Allegations

The controversy originates from a complaint filed by journalist Sapan Shrivastava, alleging large-scale financial fraud and regulatory lapses during the 1994 listing of a company on the Bombay Stock Exchange (BSE). The complaint asserts that SEBI officials facilitated market manipulation by permitting the company’s listing without ensuring compliance with the SEBI Act of 1992.

Special Court’s Directive

On March 1, 2025, a special anti-corruption court in Mumbai ordered the Anti-Corruption Bureau (ACB) to register an FIR against:

1. Madhabi Puri Buch, former SEBI Chairperson
   
2. Ashwani Bhatia, SEBI Whole-Time Director
   
3. Ananth Narayan G, SEBI Whole-Time Director
   
4. Kamlesh Chandra Varshney, SEBI Whole-Time Director
   
5. S. S. Ramamurthy, BSE Managing Director and CEO
   
6. Pramod Agarwal, former BSE Chairman and Public Interest Director
   

The court’s directive was based on Shrivastava’s allegations, suggesting that these officials were complicit in the purported fraud.

High Court’s Intervention

Challenging the special court’s order, the accused officials filed petitions in the Bombay High Court. Justice Shivkumar Dige presided over the matter and observed that the special court’s order appeared to have been issued mechanically, without delving into specific details or attributing distinct roles to the accused individuals. Consequently, the High Court granted a stay on the special court’s order for four weeks and provided the complainant, Shrivastava, the same duration to file a reply affidavit.

Reactions from SEBI and BSE

In response to the special court’s directive, both SEBI and BSE expressed their intentions to challenge the order through appropriate legal channels:

• SEBI’s Position: The regulatory body emphasized that the court’s order was issued without granting SEBI an opportunity to present its case. SEBI underscored its commitment to ensuring regulatory compliance and indicated plans to contest the order legally.
  
• BSE’s Stance: Echoing similar sentiments, BSE labeled the complaint as “frivolous and vexatious.” The exchange highlighted that the officials named in the application were not in their respective positions at the time of the company’s listing in 1994 and had no connections to the company in question.
  

Implications for Regulatory Bodies

This legal tussle brings to the forefront critical issues concerning the accountability and oversight of regulatory bodies like SEBI and BSE. The allegations, though pertaining to events from over three decades ago, have the potential to impact the credibility of these institutions. The swift legal responses from both SEBI and BSE underscore the gravity with which they perceive these allegations and their determination to uphold their institutional integrity.

Madhabi Puri Buch: A Brief Profile

Madhabi Puri Buch made history as the first woman to lead SEBI, serving a three-year term that concluded recently. Her tenure was marked by significant regulatory reforms aimed at enhancing market transparency and investor protection. However, her leadership also faced scrutiny, including allegations of conflict of interest related to investment histories highlighted by external entities like Hindenburg Research. Buch has consistently refuted these claims, asserting that her investments predated her appointment as SEBI Chairperson.

Legal Perspectives

Legal experts have weighed in on the High Court’s decision to stay the FIR:

• Procedural Lapses: Some analysts believe that the special court’s order lacked procedural rigor, as it did not provide the accused an opportunity to present their defenses before directing the filing of the FIR.
  
• Statute of Limitations: Given that the allegations date back to 1994, questions arise regarding the applicability of the statute of limitations and the feasibility of pursuing such dated claims.
  
• Implications for Future Regulatory Actions: This case could set a precedent for how historical actions of regulatory bodies are scrutinized and the extent to which current officials can be held accountable for past events.
  

Public and Market Reactions

The news of the High Court’s stay has elicited varied reactions:

• Investor Sentiment: Some investors express relief, viewing the stay as a move that prevents potential destabilization of the financial markets.
  
• Public Opinion: There is a segment of the public advocating for thorough investigations to ensure accountability, irrespective of the time elapsed since the alleged infractions.
  

Looking Ahead

The Bombay High Court’s stay is temporary, with a four-week window for the complainant to respond. The subsequent legal proceedings will be pivotal in determining:

• The validity of the allegations against the former and current officials of SEBI and BSE.
• Potential reforms in regulatory oversight mechanisms to prevent future disputes.
• The impact on the reputation of SEBI and BSE, along with their ability to function without external pressures.
• Investor confidence in India’s stock market regulations and the effectiveness of SEBI’s governance.

As the case unfolds, all eyes remain on how the judiciary will balance regulatory accountability with procedural fairness. The outcome could significantly shape the perception of India’s financial regulatory framework and set a precedent for similar cases in the future.

By – Nikita