SC refuses Mahua Moitra's plea for public disclosure of ultimate beneficial owners of AIFs FPIs

    New Delhi, Oct 29 (PTI) The Supreme Court on Thursday refused to issue any direction to the Securities and Exchange Board of India (SEBI) mandating public disclosure of ultimate beneficial owners and portfolios of alternative investment funds (AIFs), foreign portfolio investors (FPIs) and their intermediaries in India.

    A bench of Justices B V Nagarathna, R Mahadevan and D K Upadhyaya said there is no legal regime or any framework in place for any full public disclosure about the ultimate beneficial owners.

    "We find that in the exercise of a jurisdiction under Article 32 of the Constitution such a prayer cannot be granted for the reason that the framework of full disclosure as sought by the petitioner herein would mandate an existing legal framework or regulations," it said.

     "In the absence of such a legal framework or regulation, the court cannot direct public disclosure of ultimate beneficial owners… We find that the prayer sought for by the petitioner cannot be granted by this court. The writ petition is accordingly disposed of," the bench ordered.

    The bench initially questioned Moitra for filing such a petition, and said that she can raise the issue in Parliament and seek a discussion on it.

    "Petitioner is an MP. We want to know why she wants to lend her name and file this. We are concerned whether at the instance of this petitioner we should go into or not. She can easily seek discussion in Parliament," Justice Nagarathna said.

    Advocate Prashant Bhushan submitted that Moitra is more informed than a common citizen because she is a Member of Parliament and has a background of having worked for financial companies in India and abroad.

    "These AIFs and FPIs hold hundreds of lakhs of crores in our stock market. More than 20 per cent of total holdings of the stock market. She wants to protect innocent investors of the country…," Bhushan submitted.

    Justice Nagarathna told Bhushan, "Filing a public interest litigation and getting the kind of discussion through an Article 32 petition is one aspect. Article 32 petition has its own ramifications."

    Bhushan contended that getting a discussion in Parliament these days is very difficult and he can file an affidavit in this regard.

    "Your lordship is saying that an MP cannot file an Article 32 petition. This is a very dangerous proposition for this court to lay down. A Member of Parliament is in no worse position to raise an Article 32 petition before this court than any ordinary citizen. A discussion in Parliament is not a substitute for a direction of this court to conform to fundamental rights of citizens.

     "We are raising a very very important issue regarding fundamental rights of innocent investors. Rs 100 lakh crores are being invested in our stock markets," he submitted.

    While pointing out that no real affected investor was before the court, the bench asked Bhushan to not enlarge the scope of the petition and focus on the ramification of the Article 32 petition and its impact on the market.

    Bhushan submitted that the manipulation of the stock market is made possible by these opaque investments coming into India through alternate investment funds and foreign portfolio investors.

    The top court said the court cannot issue any mandamus without there being any regime in place.

    "Had there been any legal regime and the SEBI was not following it, the court can direct for compliance but in the absence of any framework or legal regime, the court cannot issue any mandamus," it observed.

    Bhushan contended that even without any regime, the court can direct full disclosure of actual beneficiaries of these funds as innocent investors are being "manipulated" by these investors, who boost up shares of certain companies.

    "These people, who are investing in our companies through foreign entities, we don't know who they are and whether they are violating SEBI regulations. Today, there is a lot of suspicion that stock markets are being manipulated by these companies, which are investing huge sums," he said.

    Solicitor General Tushar Mehta, appearing for the Centre and SEBI, said the petitioner was accused of asking questions in Parliament at the behest of some businessmen.

    He contradicted the submissions of Bhushan and said the prayer which he was seeking will create havoc in the market.

    "If something good was going to come out of all this, then it is one aspect. Second aspect is when there is no such regime of disclosure: it is a herculean task for you to convince the court to grant this prayer. If we grant this prayer, will it be good for the market?" Justice Nagarathna asked Bhushan.

    Bhushan submitted that just disclosure of who is the ultimate beneficial owner of these funds cannot hurt anybody.

    "They are saying it may affect privacy. How does privacy trump the right of the citizens and the investors to be informed as to who is investing money? The good that will come out is what we will get to know," he said.

    Justice Nagarathna said that SEBI was constituted for this purpose and these are all market forces operating within its regulatory framework.

    Moitra, in her PIL, has sought transparency and investor awareness in India's financial markets by mandating public disclosure of ultimate beneficial owners' details as well as portfolio holdings of AIFs and FPIs.

    SEBI regulates the securities markets in India, the plea said, and as part of its mandate, the board oversees the operations of AIFs and FPIs.

(This story has not been edited by THE WEEK and is auto-generated from PTI)