Supreme Court rejects petition by Mahua Moitra on transparency in AIFs and FPIs
The recent Supreme Court decision rejected a petition from TMC MP Mahua Moitra requesting increased transparency and investor awareness in India’s financial markets. This petition sought to enforce the public disclosure of ultimate beneficial owner (UBO) details, as well as portfolio holdings of alternative investment funds (AIFs) and foreign portfolio investors (FPIs), but was not entertained by the court.
Represented by Advocate Prashant Bhushan, Moitra’s plea was presented before the bench, which included Justices BV Nagarathna and Satish Chandra Sharma, with Solicitor General Tushar Mehta representing the Centre. The court permitted Moitra to submit a comprehensive representation to SEBI outlining her concerns, as the bench hinted at considering the matter based on the law after such a representation is made.
During the proceedings, Bhushan highlighted a discrepancy where mutual funds and other investors are required to disclose their investments and target companies, but such requirements are lacking for AIFs and FPIs. Despite acknowledging the issue, Bhushan admitted that no formal representation had been made to SEBI regarding this matter, which prompted the court to encourage Moitra to address these concerns directly to the regulatory body.
The petition emphasized the rapid expansion of AIFs and FPIs in India’s financial markets, leading to significant transparency issues due to their opaque operating structures. This opacity raises the risks of market manipulation, money laundering, and tax evasion, with the lack of UBO disclosure norms presenting major concerns as these entities continue to invest heavily in the Indian market.
SEBI, the regulatory body overseeing the securities market in India, regulates the operations of AIFs and FPIs through specific regulations such as the SEBI (Alternative Investment Funds) Regulations, 2012, and SEBI (Foreign Portfolio Investors) Regulations, 2019. The absence of full public disclosure of UBOs was pointed out to restrict honest market participants and hinder retail investors from conducting fair business transactions, potentially violating Article 19(1)(g) of the Constitution.
In conclusion, the denial of the petition by the Supreme Court underscores the continued challenges in achieving transparency and accountability in India’s financial markets, particularly concerning AIFs and FPIs. The need for increased disclosure requirements and regulatory oversight to prevent market abuses such as money laundering, tax evasion, and market manipulation remains a critical issue that requires close attention and potential legislative action to safeguard the integrity of the financial system.