The Pinochet Precedent: A Lesson for SEBI in Conflict & Propriety
A Chilean dictator accused of crimes against humanity, including torture, mass murder and holding people hostage seems worlds apart from Hindenburg Research’s allegations against Madhabi Puri Buch (MPB), chairperson of the Securities and Exchange Board of India (SEBI). Yet, the principles of judicial propriety that arose from Augusto Pinochet's extradition case in 1998 resonate strongly with the current crisis engulfing SEBI, following Hindenburg Research’s accusations of conflict of interest and impropriety (SEBI-Hindenburg-Adani: How Not To Handle a Credibility Crisis).
 
The Pinochet Precedent
In 1998, General Pinochet was in the United Kingdom for medical treatment. He was arrested in that country following a Spanish magistrate's indictment for human rights violations. The case, which eventually reached the House of Lords, initially resulted in a ruling against Pinochet. However, this ruling was overturned when it emerged that Lord Hoffmann, one of the judges, had undisclosed ties with Amnesty International, representing the victims of human rights violations, was a party to the case.
 
It transpired that Lord Hoffmann’s wife was connected with Amnesty International (AI) a non-governmental organisation focused on human rights. Lord Hoffmann, too, was a director and chairman of Amnesty International Charity Limited, a sister entity which had reported on Chile’s human rights violations. General Pinochet and his legal team were apparently unaware of any connection between Lord Hoffmann and AI until after the judgement of November 1998.  So, they filed an appeal asking that the order passed by the Lords be set aside  since Lord Hoffmann’s link to AI gave the appearance of a possible bias.
 
Lord Hoffmann’s failure to disclose his connection with Amnesty International, where he held a directorial position, led the House of Lords to conclude that his involvement in the judgement was ‘an impermissible conflict of interest’.
 
Interestingly, all four Law Lords on the bench held that Lord Hoffmann was disqualified from participating in the case because of the appearance of a conflict of interest and ordered the case to be reheard.
 
One member observed that there “has been no suggestion that he (Lord Hoffmann) was actually biased. He had no financial or pecuniary interest in the outcome. But his relationship with Amnesty International was such that he was, in effect, acting as a judge in his own cause. I consider that his failure to disclose these connections leads inevitably to the conclusion that the decision to which he was a party must be set aside.” Another said, “in any case where the impartiality of a judge is in question the appearance of the matter is just as important as the reality.” As an aside, in 1999, the House of Lords again held that General Pinochet did not enjoy immunity.
 
The ruling emphasised that the mere appearance of bias, even without actual bias, was enough to disqualify a judge from a case. This landmark decision underscored the ethical principle that "a man may not be a judge in his own cause," a standard that is equally relevant to regulatory authorities like SEBI.
 
Relevance to SEBI
The parallels between the Pinochet case and the current controversy involving SEBI chairperson MPB are striking. Hindenburg Research has made three key allegations against MPB and her husband:
1. Investments in an offshore entity under SEBI investigation, connected to Vinod Adani.
2. A 99% ownership in an advisory firm used by her husband for business consulting, seven years she joined SEBI.
3. Promoting an asset class in which her husband had a perceived interest.
 
Despite these allegations, MPB did not recuse herself from the ongoing Adani investigation, raising serious concerns about the integrity of the regulatory process. This situation mirrors the Pinochet case, where the appearance of a conflict was enough to warrant the recusal of a judge.
 
The capital market regulator, which frames rules, sets standards and investigates wrongdoing by millions of investors and thousands of regulated entities to safeguard a market-capitalisation of the equivalent of US$5trn (trillion) is no different from a judge making the standard set by the Pinochet case.
 
Perception about MPB’s Actions and SEBI’s Response
Notably, the market regulator’s response to Hindenburg’s allegations was to issue an unsigned press release defending itself and the chairperson, without providing details. Since then, at least two former bureaucrats have confirmed the impropriety. In an interview to Karan Thapar of The Wire, former SEBI chairman CB Bhave said that MPB should have made her disclosures and recusals to the government (finance ministry) which ought to have responded at it thought fit.
 
Former finance secretary Subhash Garg (who used to be on the SEBI board) told PTI that MPB’s conduct was a ‘very serious’ breach and made ‘her position untenable at the regulator’.
 
A news agency has pointed to a 2008 policy which bars SEBI officials from receiving fees from other professional activities, but  these rules appear to have remained vague, even though SEBI has been inducting people from the private sector into top regulatory positions.
 
Legal experts also concur on the applicability of the Pinochet principle. MR Venkatesh, an advocate, author and chartered accountant, who sent me a link to the Pinochet order of the House of Lords (https://publications.parliament.uk/pa/ld199899/ ldjudgmt/jd990115/pino01.htm) says the judgement is to the point and settles the issue.
 
Advocate Sanjoy Ghose, a senior advocate who practices at the Supreme Court and the Delhi High Court, says, “applying this liberalised conflict doctrine (laid down by the Pinochet case), it can definitely be said that when the SEBI chairperson, directly or indirectly, had some kind of linkage with an offshore entity, there was a need to disclose that to SEBI and even to the Honourable Supreme Court. More importantly, after disclosure, the right and proper thing would have been to recuse from the investigation.”
 
“Even if it is accepted that Ms Puri-Buch did not have an actual bias in the investigation, either in favour of or against Adani, I feel that by applying the Pinochet principle, she was absolutely incompetent and disqualified to be part of the decision-making of SEBI and in particular in conducting or supervising the investigation against Adani,” he adds.
 
Another eminent senior counsel, who does not wish to be named, also concurs. There are two issues with regard to MPB, he says. The first is with respect to impropriety on her part, regardless of the allegations in respect of Adani. This standard has to do with transparency in public dealings, a full and fair disclosure by top regulators, of her assets and financial interests, and also activities of a spouse who could through his holdings, cast a shadow on the regulatory authority of the SEBI chief.
 
The second and separate issue is with regard to potential perception of bias in the Adani affair. “I think Buch has fallen short of norms… I haven’t really studied the issues, but I fully agree with the Pinochet principle that she cannot be associated with an investigation where there are financial or other, perceptible connections with the Adani group either directly or through a spouse”, he says.
 
In effect, it is not about financial misconduct or overt impropriety (which would be a matter of investigation) but about whether the actions of the SEBI chairperson meet with the ethical standards expected from a regulatory body. Just as Lord Hoffman’s failure to recuse himself was considered an institutional embarrassment in the Pinochet case, this is an embarrassment for the market regulator.
 
The fact that SEBI executives, past and present, are vague about prescribed rules of conduct is also an indicator of how opaquely the regulator has been functioning for three decades. A body that is putting out new rules for market intermediaries and infrastructure institutions, almost on a daily basis, has not looked inwards and framed clear rules of conduct for its own officials. This is also a serious failure on the part of the finance ministry, the appointments committee and the central vigilance committee and needs to addressed immediately by the finance ministry and questioned by parliament.
 
Comments
adityag
2 months ago
Interesting write up!
covaimthangavel
2 months ago
Adani is a God of India
SVR
3 months ago
While steps for transparency of public disclosures of public servants are very much needed for better refinement, in respect of item 2 of the 3 charges of Hindenberg, Agora Marketing Advisory where Ms MP Buch retained a beneficial interest is not a SEBI regulated entity by any means. So if adequate discolsures were made by Ms. MP Buch before assuming a position as a board member at SEBI and disclosures duly ratified by the SEBI board and taken on record, objections raised by Mr. SC Garg would not carry weight. Facts of the yester years should be evaluated based on guidelines on record when things happened, certainly not based on todays benchmarks and practices, which would deny a fair trial of the person in question.

Further item 1 can be dismissed if adequate discolsures were made by Ms. MP Buch before she assumed the post of SEBI member and taken on record by the SEBI board (and prefererably the finance ministry also but it may not be mandatory as per SEBI internal guidelines at that time ). Item 3 just holds no water as it suggests SEBI Chairperson cannot regulate or promote an asset class regulated by SEBI in larger investor interests. It is immaterial if her husband has employment or beneficial interest in that asset class or REITS / Invits segment - simply childish argument, c'mon respect individual freedom to pursue whatever they wish, they need not exit just because their spousehas a regulatory role, bcoz evevery damn decision is in public domain and open for judgement
david.rasquinha
3 months ago
Well said.
parimalshah1
3 months ago
There are so many allegations against so many leaders, but no one resigns. Allegations are easy, but the wrong doing has to be proved. Conjectures are not acceptable as proof.
s5rwav
3 months ago
CVC Must Make its Stand Public on Continuing Mrs Madhabi Puri Buch at SEBI as Ministry of Finance, Govt of India does Not Seem to be Interested in Directing Mrs Madhabi Puri Buch to Resign.
SVR
Replied to s5rwav comment 3 months ago
Without any assessment by SEBI board to begin with , why will CVC poke their nose , has anyone complained to them ? ...btw what is the scope of CVC in this case, ...... atleast at this stage. great if you can elaborate
Kamal Garg
3 months ago
I think it is a common knowledge that CB Bhave and Subhash Garg fell foul of this government and therefore how seriously and unbiased are their opinions and comments is to be looked into.
shaidermota
3 months ago
Absolutely brilliant analogy....but in our Country, sadly shame is seriously lacking among people in positions of authority. Practice what you preach is a principal not taken seriously at all.
parimalshah1
3 months ago
First of all, what is the locus standi of Hindenberg? What business does it have in the capital market of India? What business does he have in India? This is an instigated, so-called research. It was published after taking a short position. This is in fact front running and the Hindenberg should be prosecuted for that criminal act and barred permanently from dealing in Indian capital market constituents.
rangarao.ds
3 months ago
How strange it's not a leaf flutters despite so much of widespread outcry in the press and media on the issue!
kurush
3 months ago
Caesar's wife must be above suspicion----This doctrine has to be applied t the SEBI chairperson
Nahom
3 months ago
Pinochet principle applies to Countries where Law is taken seriously. It doesn't apply to Banana Republics.
SVR
Replied to Nahom comment 3 months ago
Thank god I am not a citizen of your Banana Republic
rangarao.ds
Replied to Nahom comment 3 months ago
Very right.
bhatnagar.y
3 months ago
While I agree with the argument that MPB is in conflict and should have recused herself from the matter, are our esteemed judges not in conflict when they preside over matters which are argued by advocates who have been their batch mates in student days or peers at the bar? Do they disclose their relationships with the counsel appearing before them?
bookjohn1984
3 months ago
The Govt had NO business in appointing MPB as SEBI chief. How can an ex-broking employee be expected to be unbiased? She was head of ICICI Securities. Is it anybody's argument that she won't favor ICICI DIRECT in her rulings? Same applies to her husband's REIT and InvIT adventures. This is fast turning into another Chanda Kochchar story.
SVR
Replied to bookjohn1984 comment 3 months ago
It makes sense only if specific cases or facts are brought on record along with conjectures.
bookjohn1984
Replied to bookjohn1984 comment 3 months ago
Also, now MPB is "tainted" or "damaged" goods. This means she will be even MORE beholden to the Govt, the Finance Ministry and the two "knees" that have the whole of India in their chokehold!
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