Towards better governance - The 213th Board meeting reveals an institutional posture of pragmatic calibration

I have a piece with Manas Dhagat in today’s Financial Express on this week’s SEBI board decisions. These are important reforms with respect to both a) ease of doing business as also b) the institutional transparency and governance mechanisms of SEBI itself. The EODB reforms relate to AIFs (post term handling), FPIs (allowing net settlement of funds, not securities), Social Impact Fund (democratisation), Fit and Proper standards (rationalisation - applicable primarily if guilt established), Invits/REITs (flexibilit of investments). The full piece is as below:

SEBI’s 213th Board Meeting: Market Reforms and an Institutional Reckoning

The Securities and Exchange Board of India (SEBI), at its 213th Board meeting on March 23, 2026, approved six sets of reforms that, taken together, reveal the regulatory priorities of the current dispensation under Chairman Tuhin Kanta Pandey. Five are directed at the market,  easing compliance for alternative investment funds (AIFs), reducing transaction costs for foreign portfolio investors (FPIs), widening retail access to social finance, providing operational flexibility to infrastructure and real estate trusts, and recalibrating intermediary eligibility criteria. The sixth, and the most consequential, is directed inward: the adoption of a comprehensive conflict-of-interest and disclosure framework for SEBI’s own leadership and employees, in response to the governance questions that marked the final years of the previous chair.

Market-Facing Reforms

On AIFs, the Board has approved a pragmatic exit framework. AIFs may now retain liquidation proceeds beyond the permissible fund life where they face pending litigation or tax demands (supported by documentary evidence), anticipated liabilities (with consent of 75% of investors by value), or residual operational expenses (capped at three years). AIFs seeking to surrender registration while holding such residual amounts will be tagged “inoperative” and exempted from periodic filings, PPM updation, and performance benchmarking. This addresses a genuine regulatory anomaly, funds with no active management being compelled to maintain full compliance infrastructure merely because of residual balances arising from circumstances beyond their control.

The approval of net settlement of funds for FPI outright transactions in the cash market addresses a longstanding inefficiency. Under the gross settlement regime, FPIs were required to fund full purchase obligations independently of offsetting sales, resulting in avoidable capital lock-in and forex conversion costs, particularly acute on index rebalancing days. The reform confines netting to the funds leg; securities delivery remains gross. This calibrated design achieves cost efficiency without increasing risk in the system. Implementation is targeted by December 31, 2026.

The minimum investment in Social Impact Funds has been reduced from ₹2 lakh to ₹1,000, aligning with the minimum application size for Zero Coupon Zero Principal Instruments on the Social Stock Exchange. While the democratisation intent is welcome, whether the investor protection framework designed for an AIF product is adequate at mutual-fund-level ticket sizes will need monitoring.

The “fit and proper person” criteria under Schedule II of the Intermediaries Regulations have been overhauled. The automatic disqualification triggered by pending criminal complaints and FIRs is replaced by a principle-based, case-by-case assessment ,  a reform consistent with the presumption of innocence and with international practice where conviction, rather than charge, typically triggers rule-based disqualification. Convictions for all economic offences now trigger disqualification (expanding beyond the previous “moral turpitude” standard), the right to be heard before being declared unfit is expressly codified in Schedule II, the category of proceedings triggering non-consideration of registration is confined to Sections 11B(1) and 11(4) of the SEBI Act, and the SCN non-consideration period is halved from one year to six months. The retroactive withdrawal of pending cases initiated under the stricter prior framework is a pragmatic and welcome transitional measure.

On InvITs and REITs, the Board approved four targeted amendments: continued SPV holding post-concession (with a one-year exit window, computed from the later of completion of the concession agreement, conclusion of pending claims, or expiry of the defect liability period); expanded liquid fund deployment to schemes holding AA-rated and above instruments; greenfield investment access for privately listed InvITs (up to 10% of asset value); and broader borrowing permissions for leveraged InvITs covering capital expenditure, major maintenance, and debt refinancing.

The Regulator Regulating Itself

The most consequential resolution, however, concerns SEBI’s own institutional governance. The Board adopted the recommendations of the High-Level Committee on conflict of interest, constituted in March 2025 under former Chief Vigilance Commissioner, one of the first acts of Chairman Pandey upon assuming office, and a direct response to the governance controversy that engulfed his predecessor. 

The substantive measures are considerable. The Chairman and Whole-Time Members will now be classified as “insiders” under the Prohibition of Insider Trading Regulations, subjecting SEBI’s leadership to the same trading restrictions the regulator enforces on market participants. Investment restrictions currently applicable to employees now extend uniformly to the Chairman and WTMs, who must liquidate, freeze, or divest equity holdings upon joining. These restrictions apply prospectively to spouses and dependent family members, with existing investments grandfathered. A novel 25% concentration cap limits exposure to any single SEBI-registered intermediary, with breaches triggering mandatory recusal. The institutional architecture includes a new Office of Ethics and Compliance, a digital recusal system, a whistleblower mechanism, and mandatory initial, annual, and event-based disclosures of assets, liabilities, and relationships.

The public disclosure norm for immovable property has been aligned with All India Service and Central Civil Services standards, though full asset and liability details will be disclosed internally to SEBI rather than publicly, reflecting a compromise with employee privacy concerns.

Two significant limitations, however, temper the reform’s force. First, the adopted framework will be incorporated into SEBI’s voluntary 2008 Code on Conflict of Interest for Members of the Board, rather than notified as binding regulations. The HLC had recommended a separate set of enforceable regulations, a recommendation that the Board has referred to the Central Government. The gap between a voluntary code and a binding regulatory framework is not merely procedural; it determines whether non-compliance attracts consequences or merely disapproval. Clearly, that job must be done by the finance ministry.

Second, the proposal for an independent Oversight Committee on Ethics and Compliance which would have provided external supervision of the conflict-of-interest framework, has also been referred to the Central Government. The newly created Office of Ethics and Compliance will, for now, be supervised by the Chief Vigilance Officer, who reports to the Chairman. 

The conflict-of-interest controversy of 2024 raised questions not merely about individual conduct but about the adequacy of SEBI’s institutional safeguards. The Central Government’s response to the referred recommendations will be critical in determining whether this episode results in durable institutional reform or a well-documented set of good intentions.

The 213th Board meeting reveals an institutional posture of pragmatic calibration,  aligning regulatory requirements with operational reality in the market, while attempting to embed accountability within the regulator itself. The five market-facing reforms are well-designed and responsive to genuine practical difficulties. Whether the accountability reform achieves its purpose will depend on the distance between the voluntary code and enforceable regulation brought by the government. In fact, such a code should be implemented across regulators in the financial markets.

On the same page is FE's own opinion on the subject of governance and accountability norms. 

Getting ‘Fit and Proper’ Back in Shape

I have a piece with Manas Dhagat and Pragya Garg in today's Financial Express on the proposed amendment to 'Fit and Proper' norms of SEBI. The proposal is a welcome reform which removes the 'beheading before trial' approach of disqualifying people even though they are not found to have (yet) committed an offence merely because an FIR, Chargesheet or other civil proceedings are initiated: 

The securities market operates on public funds and is exposed to systemic risk. Regulators therefore apply a “fit and proper” criterion to assess integrity, competence, reputation, and financial soundness before granting market access. This protects investors and sustains market trust and stability. The Securities and Exchange Board of India (“SEBI”) through a Consultation Paper, proposed amendments to the ‘fit and proper’ framework under the SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”), reflecting a nuanced attempt to contemporise regulatory standards.

At the heart of SEBI’s proposals is a selective relaxation of certain automatic, rule-based triggers for disqualification in favour of greater reliance on the existing principle-based criteria under the Intermediaries Regulations that aligns more closely with global norms and jurisprudential fairness. This recalibration is not merely semantic. It signals a subtle but important maturing of regulatory philosophy, one that recognises that the presumption of innocence and proportionality are essential to sustaining confidence in India’s capital markets.

Under the existing framework, the mere filing of a criminal complaint or FIR by SEBI, or a charge sheet by any enforcement agency in an economic offence matter, leads to immediate disqualification of intermediaries and their associated individuals, even while the case is still pending. This has often led to reputational and commercial consequences that far outstrip proven misconduct. The proposed amendments remove such automatic rule-based disqualifications and instead anchor the specific rule-based trigger for disqualification at the stage of conviction. However, SEBI retains discretion under the principle-based criteria to consider the pendency of criminal proceedings of a severe nature on a case-to-case basis, and may lay down guidelines regarding cases where such pendency is egregious enough to incur disqualification.

This recalibration produces two salutary effects. First, it reaffirms the fundamental tenet of criminal justice that mere allegations do not amount to guilt. Regulatory intervention at the pre-conviction stage has, at times, risked blurring this essential boundary and undermining the presumption of innocence. Second, it brings greater coherence to the regulatory architecture by harmonising the intermediaries framework with other SEBI regulations, including those applicable to stock exchanges and depositories, which already adopt conviction-based thresholds for specified disqualifications.

While the regulator must remain alive to serious wrongdoing, calibrating thresholds to proven conduct helps avoid premature regulatory penalties that may be disproportionate to the underlying facts.

Another noteworthy proposal in the Consultation Paper is the introduction of express provisions codifying procedural safeguards, specifically the requirement to notify SEBI of events that could affect fitness and to provide the concerned party a reasonable opportunity to be heard before any determination of unfitness is recorded.

Embedding these rights directly into the regulations (rather than relying on administrative practice) brings greater clarity and predictability. While the opportunity of being heard is already afforded in practice, expressly codifying it in the regulations removes procedural ambiguity, a principle that has underpinned fair administrative action in multiple legal contexts.

SEBI’s proposals also target the incidental consequences of unfitness findings. Presently, where a regulatory order declaring a person unfit is silent on the duration of the prohibition on new registration applications, a default five-year bar applies. The amendments seek to remove this automatic consequence, thereby making prohibition periods an outcome of conscious regulatory determination rather than a mechanical consequence of statutory silence.

Further, the ambit of proceedings that trigger registration restrictions, currently including both directions and penalties, is proposed to be confined to actions under Section 11B(1) of the SEBI Act, 1992, which primarily relates to directions. The time period for non-consideration of registration applications upon issuance of a show cause notice is also proposed to be reduced from one year to six months.

Perhaps the most commercially significant proposal is the removal of mandatory divestment for persons in control declared not fit and proper. Instead, the intermediary would be required to ensure that such a person does not exercise voting rights within seven days of such declaration.

This represents a calibrated regulatory response: it neutralises the governance influence of a disqualified person, the core regulatory concern, without mandating the irreversible step of divestment. From a policy perspective, this strikes a better balance between protecting public interest and preserving economic rights given the concerns around irreversible financial loss, particularly in cases where the person may later be acquitted or found not guilty in the proceedings pursuant to which the disqualification was incurred.

The Consultation Paper also proposes a refinement in how insolvency proceedings impact ‘fit and proper’ assessments. Under the existing framework, the initiation of winding-up proceedings could lead to disqualification. Recognising that insolvency processes (especially under the Insolvency and Bankruptcy Code) are inherently resolution-oriented, SEBI proposes that disqualification ought to arise only upon the actual passing of a winding-up order, not at the threshold of initiation.

This is not merely technical tinkering. It acknowledges the commercial reality that many insolvency proceedings result in successful resolution plans and revival, and that penalising entities at the point of process commencement could unjustifiably constrict market participation.

SEBI’s proposal is commendable for seeking to balance regulatory rigour with procedural fairness, ensuring that disqualification mechanisms remain principled and proportionate. If adopted, the changes would help prevent irreversible financial and reputational harm in cases where an individual is later acquitted, while introducing greater procedural clarity and a more calibrated balance between rule-based and principle-based criteria. At the same time, SEBI’s discretion to act on serious concerns on a case-to-case basis would remain intact.

Beyond Consolidation: The Structural Reforms SEBI Needs

I have a piece with Parker Karia and Purva Mandale in today's Financial Express on the Unified Securities Code arguing that the reforms of a new code on securities law is much needed:

About two months ago, the Government introduced the much-awaited Securities Market Code, 2025 (SMC), now being scrutinised by the Parliamentary Standing Committee on Finance. The SMC consolidates scattered laws into one coherent statute, eliminates redundancies, and represents a forward-looking approach to securities regulation. While it incorporates lessons from three decades of market evolution, it falls short on certain structural aspects, which are discussed in this article.

Segregation of Functions

The Supreme Court, and various commissions and committees, have repeatedly noted that SEBI is a unique regulator inasmuch as it performs legislative, executive, and judicial functions. Ordinarily, the arms performing these functions are separate and independent. At SEBI, however, the lines between them are entirely blurred. While a nominal segregation exists, personnel performing these functions are not truly ring-fenced. The SMC's attempt to restrict investigative personnel from enforcement roles provides a more granular internal firewall, but these functions still reside within a single institutional hierarchy where personnel remain fungible. Moreover, such measures already exist and have not proven sufficient.

The segregation required must be deeply structural, not merely procedural. The SMC should restructure the regulator so that the institutional framework itself ensures ring-fencing. The divide between regulator, investigator, and judge should not be mere best-practice guidance. it should be hard law.

This is especially critical for SEBI's quasi-judicial functions. The global standard is for the securities regulator to investigate and file actions before external courts or tribunals, rather than adjudicating in-house. While replicating that model entirely may be impractical given India's judicial delays, the SMC should at least mandate that SEBI's adjudicating officers be external persons, independent of SEBI, particularly in matters involving market abuse, fraud, and insider trading. The US Supreme Court's recent ruling in SEC v. Jarkesy offers a valuable primer on this question. The appointment of external adjudicators with professional qualifications in law and finance, or demonstrable experience in securities adjudication, would likely produce orders that are more robust and less easily overturned on appeal.

SEBI's Investigative Powers

As financial markets grow more sophisticated, so do fraudulent schemes. Those who engage in market abuse do not publicise it. Encrypted and disappearing messages pose significant challenges to effective investigation and successful prosecution. It is difficult to combat white-collar crime with one hand tied behind the back. SEBI itself has acknowledged these difficulties — its proposed SEBI (Prohibition of Unexplained Suspicious Trading Activities) Regulations, 2023 (PUSTA Regulations), sought to shift the burden of proof onto the alleged violator.

While the PUSTA Regulations were not the right approach, SEBI's concerns are legitimate. The solution, however, lies not in reversing the burden of proof, but in broadening the regulator's investigative powers.

With great power comes great responsibility. Any expansion must be accompanied by stringent procedural safeguards ensuring that privacy cannot be invaded without just cause. These safeguards are necessary not only for future powers Parliament may confer, but also for those SEBI already possesses. For instance, SEBI can currently call for the trading or banking details of any person — such powers must be subject to strict due process protections.

Principle-Based Regulation

Laws governing a dynamic sector like securities markets should adopt a principle-based approach rather than a rule-based one. Today, the subordinate legislation governing SEBI intermediaries is highly prescriptive, aimed at ensuring consistency and reducing ambiguity. This departs from common-law principles that allow core law to grow organically through judicial interpretation.

This rule-based approach has led to regulatory overreach and compliance fatigue. It encourages a box-ticking culture, reduces flexibility in adapting to market developments, and increases compliance costs, all of which negatively impact the ease of doing business. Most critically, over-prescription produces both false negatives and false positives: the guilty go free, and the innocent are convicted.

It may be time to shift to a principle-based framework. Regulations would set out broad, high-level guidance that clearly conveys the spirit of the law, allowing flexibility for complex and evolving situations. Regulatory standards would be established through reasoned enforcement orders, allowing principles to be applied contextually. Consider a simple but telling example: the US defines fraud, and implicitly insider trading, in a single sentence. India, by contrast, devotes two entire regulations solely to defining fraudulent activity and insider trading. Where the US has used 150 words, India has used 22,000.

In conclusion, while the SMC is the next logical step for the orderly development of India's securities markets and the fostering of economic growth, this opportunity should be used not merely to consolidate existing laws, but to create a framework that is truly future-proof.

 

The revival of the Ombudsperson: Towards a comprehensive framework for resolution of disputes in the securities market

I have a piece with Rishabh Jain in today's Financial Express on the promise of SEBI's ombudsman scheme which has never been operationalised till now. The proposed securities code brings it to life with statutory blessing. It would be an important reform which will bring the citizen charter to life. The full piece is as below;

On December 18, 2025, the Finance Minister tabled the Securities Market Code (“SMC”) bill in the Lok Sabha, proposing to consolidate and reform India’s securities legislation, presently contained in three separate statutes. In a step that significantly enhances the jurisdiction and role of the Securities and Exchange Board of India (‘SEBI”), the SMC contains a provision for the Ombudsperson – officers designated by SEBI to resolve investor grievances in relation to deficiency in services rendered by a securities markets service provider (“SMSP”) (viz. an intermediary, a market infrastructure institution (“MII”) or a self-regulatory organisation) or any act or omission of an issuer.

According to the architecture envisioned in the SMC, the investor would first approach an investor grievance redressal mechanism provided or prescribed by SEBI. If the grievance is not redressed within 180 days, the investor may approach the Ombudsperson within 30 days. However, a complaint would not be maintainable before the Ombudsperson if the investor has initiated a proceeding before any court, tribunal, or authority in respect of a matter which is directly or substantially in issue of such complaint.

The “deficiency” in services that may be adjudicated by the Ombudsperson have been defined broadly to mean any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under the SMC, or any rules and regulations made thereunder, or has been undertaken to be performed by an SMSP in pursuance of a contract or otherwise in relation to any service in the securities markets. It includes any act of negligence or omission or commission which causes loss or injury to the investor, as well as deliberate withholding of relevant information to the investor.

If satisfied that the allegations in the complaint are true, the Ombudsperson would redress the complaint and may, by a written order, direct the respondent to comply with its obligations; return the fees, charges or such other amount to the complainant, jointly or severally; or pay such amount as damages to the complainant as may be specified by regulations. The Ombudsperson order would be binding on both the complainant and the respondent.

Further, if the Ombudsperson is of the opinion that the respondent has contravened the securities laws, he may inform SEBI of the same. An Ombudsperson order would not bar SEBI from taking action under the SMC. Ombudsperson orders would be directly appealable to the Securities Appellate Tribunal (“SAT”). 

If an SMSP or an issuer/agent fail to comply with an Ombudsperson order, they would be liable to a penalty which would not be less than Rupees ten lakhs but which could extend to three times the unlawful gain made or unlawful loss caused thereby, or to Rupees 100 crores if there is no quantifiable gain/loss or if the gain/loss is less than Rupees 100 crores but the SEBI Adjudicating Officer finds sufficient cause to increase the penalty. 

Thus, it is seen that the Ombudsperson, though an officer of SEBI, is envisioned as an independent office exercising judicial powers. The same must be appreciated in light with SEBI’s previous experience with the concept. The SEBI (Ombudsman) Regulations, 2003 (“Ombudsman Regulations”), issued by the SEBI upon the recommendation of the report of the Joint Parliamentary Committee on Stock Market Scam and Matters Relating Thereto. 

However, the same could not be operationalized for various reasons. Firstly, SEBI did not have the power to decide a dispute or a lis. Secondly, since SEBI was not clearly empowered under the SEBI Act, 1992 to grant compensation, it could not empower the Ombudsman to do the same. Thirdly, the Ombudsman Regulations did not require the Ombudsman to be a judicial authority, and it was doubtful that a non-judicial authority would be entitled to award compensation. Finally, the Ombudsman Regulations did not provide for an enforcement mechanism to execute the orders of the Ombudsman. Thus, the Ombudsman Regulations were repealed in 2023.

In this backdrop, it is seen that the reintroduction of the Ombudsperson in the SMC is an attempt to operationalize an idea that had been recommended by a Parliamentary Committee over two decades ago but which could not be implemented due to lack of statutory backing. However, certain steps may be taken to further strengthen the mechanism.

Firstly, the SMC does not specify the qualifications of the Ombudsperson. Given that the Ombudsperson is envisioned to act in a judicial capacity, it may be recommended to require in the SMC itself, rather than leaving to regulations, that the Ombudsperson be a person with appropriate legal training and experience.

Secondly, the actions or omissions of the issuer or agent that are subject to the Ombudsperson’s jurisdiction have not been specified. It is recommended that the categories of issuer/agent-investor disputes that are intended to be submitted to the Ombudsperson be clearly defined, so as to avoid conflict of jurisdiction with the company law tribunals.

Thirdly, whereas the body of the SMC contains only three remedies that the Ombudsperson may grant, a Note uses the term “etc.” in relation to such remedies. It is recommended that the Ombudsperson be empowered to grant non-monetary remedies including directions, in order to put the aggrieved in the same place as if the wrong had not happened, or to put in place checks to prevent further wrongs.

Fourthly, it is envisioned that Ombudsperson orders bind only the parties to a dispute. However, in certain cases, third party rights may be affected by the findings in such orders. For instance, if the Ombudsperson finds that a certain pledge on an investor’s shares was created invalidly by a broker, the same would affect the rights of the pawnee. Thus, the Ombudsperson may be permitted to join all necessary and proper parties to the case, and Ombudsperson orders may be made binding on all such parties.

Finally, the procedure applicable to Ombudsperson proceedings has not been specified. The same may lead to ambiguities surrounding the applicability of the Code of Civil Procedure. It would be advisable to explicitly specify that Ombudsperson proceedings would be governed by rules of natural justice, and that Ombudsperson orders would be made public.

The introduction of the Ombudsperson system is a welcome step towards the establishment of a comprehensive system for the resolution of investor grievances in the securities market, an aspiration that SEBI has had for over two decades. 

 

Women Independent Director Leadership Program at Indian Institute of Management, Ahmedabad

Sharing an upcoming IIMA Executive Education program for women leaders preparing for board roles.

Women Independent Director Leadership Program

Dates: March 16 to 19, 2026

Format: case method, simulations, role plays, and peer coaching for board presence

I am co-chairing this short course with Prof. Promila Agarwal at IIM Ahmedabad campus 

 

What you can expect to take away

• Clarity on duties, responsibilities, and liabilities of Independent Directors

• Stronger financial fluency to question statements, value drivers, capital allocation, risk, and controls

• Practical boardroom skills for influence, dissent with respect, and ethical courage

• A working lens on sustainability and stakeholder stewardship

 

Who it is for

• Senior women leaders, founders, partners, and executives transitioning to oversight roles

• Sitting directors who want a sharp refresher on governance, finance, and ESG

 

Early bird: 7 percent discount for applications with payment on or before Feb 23, 2026

Application deadline: Mar 2, 2026

If you know someone who could benefit, please forward.

#IIMA #ExecutiveEducation #CorporateGovernance #BoardReadiness #WomenOnBoards #LeadershipDevelopment

IPO listing of PSEs as a sound divestment strategy

I have a piece in the Economic Times on the benefits of divestment, specially in the petrochemicals sector. (28 Jan 2026)

Synopsis

Divestment, when designed as a governance instrument rather than just a sale, transforms state ownership into a continuously scrutinized economic asset. This approach enhances price discovery, capital allocation, and productivity, as demonstrated by the BCCL IPO and the oil and gas sector's market capitalization growth. Effective divestment requires clear objectives, credible disclosures, and sustained governance follow-through.

India’s divestment programme has often been judged too narrowly, as if it is only a fiscal event or a political signal. In reality, the most powerful case for divestment is institutional. When done well, it converts state ownership from an administrative arrangement into a governed, disclosed, and continuously scrutinised economic asset. That shift creates benefits that compound over time for the Government, for investors, and for the companies themselves.

A listed public sector enterprise sits at the intersection of two disciplines that are difficult to replicate inside a purely administrative framework: price discovery and capital allocation. Price discovery matters because it converts broad information, sector expectations, operating efficiency, policy risk, and future cash flows into a daily public signal. Capital allocation matters because it forces management and the shareholder state to justify investment choices, dividend policy, and growth plans in front of a market that can reward or punish the story quickly. This is not just about raising money. It is about lowering the long run cost of capital, reducing informational opacity, and placing national assets into a more efficient feedback loop. It also provides a tool for government to assess the performance and corporate governance by looking simply at the price instead of hundreds of metrics.

Divestment also reshapes fiscal quality, not merely fiscal quantity. Proceeds can support public capex, reduce borrowing needs, and expand room for counter cyclical response when global shocks arrive. But the bigger gain is credibility. When the state shows that it can sell stakes through transparent processes and still preserve strategic direction, it signals a mature state market relationship. That credibility reduces the risk premium that investors attach to state owned firms, which directly affects valuations and future fundraising potential across the PSU universe.

There is a second, often underestimated, economic channel: productivity. Public ownership need not imply low productivity, but weak accountability often does. Listing tightens accountability through a continuous public lens. Targets become measurable. Efficiency initiatives become visible. Working capital discipline becomes a quarterly conversation. Even when the Government remains the controlling shareholder, the presence of minority investors changes incentives in a practical way. Boards must engage. Management must explain. Auditors and analysts ask inconvenient questions. Over time, this shifts the internal culture from merely compliance driven to performance explained.

The regulatory angle is where divestment becomes most compelling. Listing subjects a PSU to SEBI’s disclosure and governance architecture and to the wider framework of market conduct regulation. Continuous disclosure obligations, related party transparency, audit committee effectiveness, and board level accountability do not merely tick boxes. They reduce the space for hidden subsidies, soft contracting, and delayed recognition of costs. Minority shareholder protection strengthens internal discipline because transactions that were once decided in closed rooms now need defensible rationale and reporting. The practical effect is that governance becomes enforceable, not aspirational.

Divestment also complements modern regulatory thinking. India’s market regulator has steadily emphasised disclosure quality, timely information, and stronger governance practices across listed firms. Bringing more state enterprises into the listed ecosystem widens the zone where these norms apply. It improves benchmarking because investors can compare operating metrics across peers. It enhances enforcement leverage because market conduct rules apply with greater consequence. And it deepens the institutional investor base that can engage constructively on governance, risk management, and sustainability.

This is why divestment is not a retreat of the state. It is the state choosing a more sophisticated mode of ownership from tax-payer to tax-payer. The Government can remain strategic, but it becomes more transparent. It can pursue national outcomes, but it must make policy burdens explicit rather than implicit. It can demand service delivery, but it must recognise the cost and compensate it cleanly. The result is a healthier distinction between commercial performance and policy intent, which is exactly what investors need to trust PSU equity. Importantly, the company can raise public money from time to time instead of being solely dependent on the national exchequer. 

The recent IPO of Bharat Coking Coal Limited (BCCL) fits into this narrative as a recent proof point of market confidence in a well-executed PSU offering. BCCL, a Coal India subsidiary under the Ministry of Coal, is strategically central to steel and infrastructure, with large reserve visibility and a dominant share of domestic coking coal production. Its public issue, priced at ₹23 per share with an offer size of about ₹1,068.8 crore and post issue valuation of about ₹10,687.8 crore, was positioned on fundamentals and governance credibility and was delivered with intensive institutional outreach. Inspite of the current headwinds in the Indian markets, it drew record scale applications and a headline subscription of 147 times, signalling that execution quality and clarity of narrative can overcome short term risk aversion.

Oil and gas provides a parallel lens, less about an individual issue and more about governance outcomes translating into audited performance and market validation. The combined net profit of ONGC, Indian Oil, BPCL, HPCL, GAIL, Oil India, and Engineers India is stated at over 90 thousand crore in FY 2024 to 25, and market capitalisation expansion is estimated at ₹4.17 lakh crore between FY 2021 to 22 and Q2 FY 2025 to 26. This matters because these enterprises sit at national scale, touching household fuel access, logistics, and inflation sensitivity, so stronger commercial health and clearer governance reduce macro risk.

The central lesson from both sectors is that divestment works best when it is designed as a governance instrument, not only as a sale. That requires three things.

 First, clarity on the objective. Is the transaction meant to widen ownership, raise proceeds, improve governance discipline, unlock subsidiary value, or all of these. Markets can handle multiple objectives, but they punish ambiguity. When the Government and the company articulate what changes after listing, how capital allocation will be governed, and how policy obligations will be treated, valuations improve and volatility reduces.

Second, credibility of disclosures. Investors do not expect perfection, but they expect candour. Clear articulation of policy risks, supply realities, capex priorities, and regulatory constraints creates trust. Trust then expands the investor base, which matters because a wider base supports better price discovery and lowers dependency on any one pool of capital.

Third, follow through on governance. Listing is only the start. The dividend and investment balance must be transparent. Related party dealings must be defensible. Boards must function as real oversight bodies. Risk controls must be visible. When these become routine, the market begins to treat a PSU less as a policy proxy and more as an operating enterprise with a distinct strategy.

For the Government, the payoff is a stronger disinvestment franchise, deeper capital markets, and a fiscal pathway that does not rely excessively on distortionary taxation or debt. For investors, the payoff is exposure to national scale businesses under a tightening governance net. For companies, the payoff is discipline, credibility, and a clearer licence to modernise, including technology adoption, efficiency upgrades, and, where relevant, transition readiness.

The next phase of India’s PSU story will be shaped less by debates about ownership and more by the quality of institutional design. Divestment, done with regulatory seriousness and economic clarity, is one of the few tools that improves governance while also improving valuation. That is why it is not merely good policy. It is good economics.

 

When whispers become truth

I have a piece with Rashmi Birmole and Yash Vardhan in today's (26 Jan 2026) Financial Express analysing the recent order on insider trading exonerating several people in the Adani Green case. The ruling holds that once information enters the public domain, no matter from where, the information ceases to be non-public information. Trades based after the information seeps in would not be prohibited insider trading laws. 

When Market Whispers Become Truth

Sebi order sensibly expands the safe harbour protections for trading on public information

India’s insider trading enforcement framework has evolved since the overhaul of the insider trading regulations in 2015. Over the past decade, SEBI has refined definitions and concepts, and prosecuted insider trading charges with increasing sophistication. Yet one question that remained to be clearly answered is when information reported in the media about corporate transactions, that haven’t been formally announced, goes from being a mere ‘market rumour’ to ‘generally available information’? This is crucial because if a piece of information is classified as generally available, then a person cannot be penalised for insider trading for trading using such information, regardless of how it was obtained. The idea is that if the information is already publicly available and priced in, then the advantage an insider has over public investors disappears. 

Two recent orders passed by SEBI on December 12, 2025, in the Adani Green Energy–SB Energy matter offer the clearest answer to this question yet.​

Both proceedings stemmed from Adani Green Energy Limited’s (AGEL) May 19, 2021 announcement of share purchase agreements executed with SoftBank Group Capital and Bharti Global to acquire their stake in SB Energy Holdings, a transaction that could potentially increase AGEL’s operational capacity by roughly 46%. SEBI investigated trades executed in days preceding the announcement by entities connected to the Adani group. In the first matter, Vinod Bahety, then Head of M&A at the Adani group, was alleged to have communicated inside information about the acquisition to one Tarun Jain, who through proprietary and controlled accounts, consequently purchased 2 lakh AGEL shares on May 14, 2021. In the second, Pranav Adani, a director across multiple Adani entities, was alleged to have tipped his relatives, who purchased AGEL shares on May 17 and 18, 2021. All noticees were exonerated of the insider trading charges without directions, penalties or any directions for disgorgement.​

What is particularly curious about this matter is the multiple instances of contradictions between the adjudicating officer’s (AO) conclusions and the findings of the investigating authorities, as captured in the investigation report (IR). The AO’s evaluation of information reported about the acquisition revealed that the very information that SEBI’s own investigating authority had classified as ‘UPSI’ had been in the public eye for most of the UPSI period in question. The AO found that by May 16, 2021, three days before AGEL’s formal announcement, newspapers reported detailed and specific information about the acquisition, including the stage of the transaction, expected valuation of SB Energy and timelines, that the AO noted is the same information which has been alleged as UPSI, that the noticees supposedly possessed and traded on. The AO rejected the investigating authority’s findings about the news reports being speculative merely on the basis that none of the parties to the transactions provided any comments to the media. 

Interestingly, the findings indicate that SEBI may have silently accepted that UPSI related to the acquisition was not in existence as on May 18, 2021, which contradicted the IR’s claim that UPSI had existed since April 29, 2021. This was because on May 18, BSE had accepted a disclosure from AGEL to the effect that there was no event that required any disclosure and no definitive agreement was signed at that stage. Ironically, the IR itself recognised this announcement as a major one, leading to an increase in the price of AGEL shares. 

The concept of ‘generally available information’ sits at the core of the UPSI definition under Regulation 2(1)(n) of the PIT Regulations. Information qualifies as UPSI only if it is not generally available, where generally available means information accessible to the public on a non-discriminatory basis. This formulation was deliberate, the High-Level Committee that drafted the PIT Regulations recognised that the Indian insider trading framework was founded on the principle of information parity across all market participants, and that information asymmetry, not mere possession of information, is what is prohibited. 

Until now, the doctrine has been applied rather conservatively. Curts and tribunals have been careful to distinguish between vague market chatter and what can be considered a concrete and credible disclosure of information about a potential corporate action, in the context of insider trading allegations. The traditional view was that where an issuer denies or declines to confirm media speculation about a transaction, market participants were entitled to treat the matter as unresolved. 

The Adani Green orders recalibrate this understanding. The AO reasons that if the information reported in the media is specific and accurate, as evidenced by the eventual exchange announcement made on May 19, 2021, then it can be categorised as generally available, regardless of whether the entities involved confirm/comment on any media reports. If negotiations for a significant acquisition are underway and press reports accurately describe them, that information is considered to be already available in the market as it becomes accessible to public at large.​

The orders, treat AGEL’s May 18 clarification as immaterial. Once detailed news reports appeared on May 16, the information had entered the public domain for insider trading purposes, regardless of what the company itself said two days later. Through the Adani Green orders, SEBI has given clearer guidance that detailed, credible financial press coverage of upcoming deals or corporate actions may be treated as ‘general availability’ of inside information about the deal, provided it is accurate, even where the issuer has not confirmed or commented on such coverage. This order sensibly expands the safe harbour protections for trading on public information whether it originated from the company itself or was otherwise available.