NEW DELHI: The Supreme Court on Tuesday declined to examine a PIL by TMC MP Mahua Moitra seeking transparency and investor awareness in India's financial markets by mandating public disclosure of ultimate beneficial owners (UBO) details as well as portfolio holdings of alternative investment funds (AIFs) and foreign portfolio investors (FPIs).
SEBI Regulations on AIFs and FPIs: Transparency Concerns and Investor Protection
A bench of Justices B V Nagarathna and Satish Chandra Sharma said the petitioner should first make a representation with the authorities concerned.
Advocate Prashant Bhushan, appearing for the petitioner, agreed to make a representation but urged the court to keep the matter pending.
The bench, however, disposed of the matter, giving a liberty to the petitioner to make a representation, which would be considered in accordance with the law.
Solicitor General Tushar Mehta was also present during the hearing on behalf of the Union government.
Mahua Moitra’s PIL: The Case for Greater Accountability in India’s Financial Markets
The plea stated any non-disclosure of ultimate beneficial owners of these funds leaves India's capital markets and financial system vulnerable to foreign interference, money laundering and tax evasion. It is equally detrimental to investor confidence and economic welfare of the nation. Opaque financial structures have the ability to harm national economic interests.
The larger public interest in having transparent financial markets far outweighs the privacy interests of AIFs and FPIs, it added.
The petitioner claimed the rapid expansion of AIFs and FPIs in India's financial markets has given rise to serious transparency concerns.
"Unlike Mutual Funds, which are subject to stringent public disclosure norms, AIFs and FPIs operate under opaque structures, raising risks of market manipulation, money laundering, and tax evasion," her plea said.
It pointed out the Securities and Exchange Board of India (SEBI), a statutory body, regulated the securities markets in India. As part of its mandate, SEBI oversees the operations of Alternative Investment Funds (AIF) and Foreign Portfolio Investors (FPI) in India. SEBI (Alternative Investment Funds) Regulations, 2012 and SEBI (Foreign Portfolio Investors) Regulations, 2019 have been enacted for the regulation of AIF's and FPI's in India.
The plea claimed the lack of full public disclosure of UBOs hampers the ability of honest market participants and especially the retail investors to conduct their business freely and fairly and is therefore a violation of Article 19(1)(g) of the Constitution of India.
"The opacity in AIF and FPI structures allows certain entities to manipulate the market and unfairly benefit at the expense of others, undermining the integrity of the capital markets and affecting the right to carry on business freely," it said.
The plea said the public sector undertakings and state owned companies are also participants in India's capital markets which comprises taxpayers money.
"Any volatility in the capital markets because of foreign forces or such entities would lead to undermining the integrity of the entire financial system. The lack of transparency and oversight in the operation of AIFs and FPIs threatens the integrity of the financial markets, which can further have a cascading effect on public welfare, investments, and the economy," it contended.
