Supreme Court dismisses Mahua Moitra plea for disclosure of ultimate beneficial owners of AIFs, FPIs

The Supreme Court on Thursday dismissed a writ petition filed by Trinamool Congress Member of Parliament (MP) Mahua Moitra seeking directions to the Securities and Exchange Board of India (SEBI) to mandate full public disclosure of ultimate beneficial owners, last natural persons and investment portfolios of Alternative Investment Funds (AIFs) and Foreign Portfolio Investors (FPIs).

A Bench of Justices BV Nagarathna, R Mahadevan and DK Upadhyay held that the judiciary cannot enter the realm of policy-making or issue a writ of mandamus directing regulators to formulate a specific disclosure regime.

"In the absence of such a legal framework of regulation, the court cannot direct public disclosure... It is ultimately for the Union and the SEBI to put a framework in place under which such a disclosure could be mandated. In the absence of such a framework, this court cannot exercise its discretion and issue a writ of mandamus," the Bench ordered.

The Court added that the Union of India and SEBI may consider the issue "in their wisdom" in light of evolving economic realities, while clarifying that its observations did not bind the authorities to introduce new regulations.

Moitra had moved the top court arguing that retail investors were vulnerable to market manipulation due to the opacity surrounding foreign funds investing in Indian bourses.

Appearing for Moitra, advocate Prashant Bhushan submitted that AIFs and FPIs hold over ₹100 lakh crore - amounting to more than 20 percent of India's stock market value. He alleged that promoters often use these vehicles to circumvent the 25 per cent minimum public shareholding norm.

"There is a rule of SEBI today that in no publicly listed company can the family of the promoters own more than 75% shares. The reason is that if it’s a publicly listed company, then the share price should not be capable of being manipulated by the promoters," Bhushan submitted.

He further contended that prior to 2018, SEBI required disclosure of the ultimate natural persons behind investments, but later diluted the requirement by aligning it with the Prevention of Money Laundering Act (PMLA) thresholds. Under current rules, he argued, disclosure is triggered only if an entity holds more than 10 per cent economic interest, allowing promoter groups to spread holdings below the threshold to conceal their identities.

"PMLA requires that those who hold more than 10% economic interest in a particular company are only required to disclose. If 5 people own 9.9% each and together they own more than 50% they are not required to disclose. 5 persons from the same family," Bhushan argued.

He also referred to the Court-appointed expert committee's findings in the Adani-Hindenburg row and pressed that regulatory changes in 2018 had created an information vacuum for the market regulator.

"In the Hindenburg case, there was a suspicion raised that there are companies based abroad which have invested a lot of money into Adani group and therefore they are violating that regulation which requires 25% minimum free float...The expert committee said that SEBI is unable to find out who are the Ultimate Beneficial Owners because they are saying that in 2018 they did away with this requirement," Bhushan argued.

The Bench, however, questioned whether such an issue ought to be entertained under Article 32 at the behest of a sitting parliamentarian, noting,

"She is an MP. Why she wants to file this case?... If she wants any kind of discussion on this, she is at liberty to seek a discussion on the floor of the House. But filing of a PIL and getting this kind of discussion through an Article 32 petition... especially when the petitioner is an MP," the Bench observed.

Bhushan responded that an MP's status should not disentitle them from acting as a pro bono publico.

"Discussion in Parliament is not a substitute for a direction of this Court to conform to fundamental rights of citizens. If an MP cannot file an Article 32 petition, it will be a very dangerous proposition for this Court to lay down," Bhushan contended.

The Bench, however, maintained that retail investors are guided by market advisors and that courts cannot step into the executive's domain. It further pointed out that SEBI already receives confidential disclosures enabling regulatory oversight and enforcement whenever warranted.

"If there is a policy which mandates public disclosure and it is not being followed, then asking for mandamus is one aspect. But if there is no framework or policy in existence for a public disclosure, then can a court say it by mandamus? Is it not touching upon policymaking?... We cannot impose any policy on the executive," the Court remarked.

Meanwhile, Solicitor General Tushar Mehta, appearing for the regulatory authorities, submitted that SEBI had already justified the disclosure architecture and warned that mandating blanket public disclosures of entity-wise portfolios would have a destabilising effect on the market.

Disposing of the petition, the Court added that the Union government and SEBI may consider the issue "in their wisdom" and come up with a regulatory framework if needed.

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