The Delhi High Court’s recent judgement in Siddharth Shankar vs SEBI, arising from a broker default, should prompt institutional introspection within SEBI. Experience suggests otherwise. SEBI has often dragged such matters to the Supreme Court. This case exposes a persistent resistance to constitutional fairness, even after clear and binding guidance from the Supreme Court.
The dispute was straightforward. The petitioner sought access to the internal report prepared before initiating criminal prosecution. In Takano (2022), the Supreme Court had already settled that disclosure obligations turn on relevance and nexus to the decision-making, not on the regulator’s claim of what it has “relied upon”. Despite this, SEBI chose to contest disclosure before the High Court, advancing arguments already rejected at the highest level. This reflects an institutional discomfort with constitutional constraints.
The right to a fair trial under Article 21 separates lawful and arbitrary power. Courts have repeatedly held that all material influencing a decision must be disclosed. Yet, SEBI behaves as though disclosure is a matter of its grace rather than a constitutional obligation.
SEBI is among the most powerful regulators, armed with sweeping powers. It has otherwise earned a strong reputation over the past three decades, especially in market development. When such an institution routinely starts contesting basic fairness, the issue ceases to be one of legal interpretation and becomes one of organisational culture, a culture that is against the motto close to the heart of the central government, promoting ease of doing business.
This is visible in SEBI making serious allegations while resisting the corresponding burden of proof. In the NSE colocation matters (sub judice), involving alleged illegal advantage to brokers through certain exchange server connections, SEBI has freely drawn conclusions of market abuse. However, it has shown little inclination to produce evidence of the alleged advantage itself. Not only that, but actions against brokers for also allegedly violating two NSE guidelines, on secondary connections and on TAP, are opposite to each other.
Similar arbitrariness appears in SEBI’s approach to tracing fund flows in corporate frauds. In some matters (Gensol), forensic scrutiny is pursued aggressively, while in others, obvious trails are ignored. This creates the impression that even serious corporate fraud investigations are conducted according to the officials’ convenience only.
In DPI cases, SEBI famously read words into the statute that do not exist. What compounds the problem is that the defence of such arbitrary interpretations is funded through practically unlimited legal expenses paid from monies collected directly from the very market participants that are affected by SEBI’s wrongful actions.
The BSE illiquid options cases offer another stark illustration. Out of nearly 15,000 entities, SEBI initially proceeded against roughly 50. This selective enforcement was defended vigorously in the court despite its evident vulnerability and ultimately failed. Subsequently, SEBI was compelled to introduce settlement schemes—not once, but twice—to persuade 15000 noticees to help SEBI close these cases. What is particularly troubling is that despite SEBI itself characterising these violations in the settlement schemes as minor technical offences, it later imposed serious penalties for similar NSE trades.
The same pattern recurs in the NSEL broker cases (sub judice). Prolonged litigation and judicial rebukes have not resulted in meaningful course correction. SEBI is yet to modify its “fit and proper” determination for brokers (market intermediaries) arising from this matter, despite a commitment to the High Court.
Equally unsettling is SEBI’s growing tendency to reopen long-closed matters involving reputed corporates, sometimes decades later, without the emergence of new material facts. The power to reopen concluded matters, when used capriciously, undermines legal certainty, a legitimate business expectation. Yet, such actions are routinely defended with little regard for finality or proportionality.
Internal governance failures further aggravate these external excesses. There are serious allegations of investigating authorities suppressing exculpatory evidence to falsely build cases of corporate fraud. When such officers are rewarded with favourable postings instead of being subjected to an enquiry, it sends a deeply damaging signal. Similarly, instances where adjudicating officers allow matters to remain dormant for years, revive them only after complaints, and are then promoted to senior positions point to the decay of organisational culture.
Vigilance oversight, an internal safeguard, is completely compromised. When a Chief Vigilance Officer grants clearance to his or her own administrative superior, the conflict is self-evident. Vigilance becomes performative rather than substantive.
SEBI justifies all this in the name of “protecting the organisation”. This reveals a troubling inversion of priorities. A statutory regulator exists to serve the country, its economy, and the investing public. An approach that places the organisation above constitutional values, market integrity, economy, and public interest can only be described as callous.
There is a stark contrast between this reality and SEBI’s recent public emphasis on ethics and governance. Codes of conflict of interest are drafted and publicised, offering symbolic reassurance while leaving the underlying culture untouched. Cosmetic reforms cannot compensate for an enforcement mindset that normalises arbitrariness, selective action, and evidentiary shortcuts. No statutory rewrite (Securities Markets Code) can correct an institutional mindset that treats judicial oversight as obstruction and fundamental rights as irritants.
Judgements like Siddharth Shankar vs SEBI reaffirm the boundaries within which a powerful regulator must operate. A regulator that perceives such boundaries as threats reveals insecurity, not strength. SEBI will do well to identify officials at all levels demonstrating such insecurity and counsel and train them.
If SEBI is to command genuine respect rather than reluctant compliance, it must accept that effective regulation and the rule of law are not adversaries. Until that cultural shift occurs, no new code, no expanded powers, and no rhetorical commitment to investor protection will deliver meaningful change. The problem is not the inadequacy of law, but SEBI’s persistent refusal to internalise that it, too, is subject to it.
The writer is a retired IRS officer and Ex-Chief of Surveillance at SEBI. Advisor to corporates, market participants and tech entrepreneurs.
