The Role Of SEBI In India: Guardian Of Markets, Or A Regulator Turned Political Tool?

So what happened to the watchdog that was supposed to bark at everyone equally?

Picture India’s stock market as a casino the size of a country. I am talking about ₹400+ lakh crore of market capitalization, tens of millions of retail investors, and a single referee standing between order and chaos. 

That referee is the Securities and Exchange Board of India. For most of its existence, SEBI has been the quiet institution nobody thinks about until something goes wrong. 

It also determines whether your mutual fund statement deserves your trust, whether an IPO prospectus tells the truth, and whether the company whose shares you just bought is cooking its books.

Since 2019, however, SEBI has stepped out of the shadows. It has entered, sometimes by choice and sometimes by circumstance, some of the country’s loudest political controversies.

Parliamentarians have accused the role of sebi of shielding powerful interests. A US short-seller has alleged that the regulator was compromised from within. Even former SEBI officials have questioned whether the institution has surrendered some of its independence.

This is the story of how that happened. And, just as importantly, the story of what SEBI actually does, has done well, and still does better than almost any regulator India has ever built.

Both of these stories are true at the same time. That’s what makes this uncomfortable to write, and necessary to read in full.

What SEBI Was Actually Built To Do

Before the controversy, the mandate. SEBI exists to protect investors, promote the development of the securities market, and regulate it in an absolutely neutral way. To clarify, it: 

• licenses stockbrokers, mutual funds, and investment advisors
• polices insider trading and market manipulation
• decides the rules for IPOs, mergers, and corporate disclosures
• runs the machinery that lets a retail investor in a small town trust that the numbers on a listed company’s balance sheet mean something.

SEBI actually began life in 1988 as a non-statutory body with almost no teeth. It couldn’t enforce its own guidelines or punish violators. That changed because of one man’s greed.

In the early 1990s, stockbroker Harshad Mehta used forged bank receipts to divert money into the stock market. He was also artificially inflating share prices before cashing out. 

Back then, it was a scheme that eventually collapsed the market and wiped out the savings of thousands of ordinary investors.

What Does Former SEBI Chairman U.K. Sinha Say: 

“SEBI’s foundation dates back to 1988, but the Harshad Mehta scam pushed lawmakers to enact the SEBI Act, 1992, fundamentally reshaping India’s approach to investor protection.”

The scam wasn’t just a crime story. It was proof that India’s markets had no real cop on the beat. Meanwhile, that vacuum had cost ordinary families their life savings.

What followed was three decades of genuine institution-building: 

• electronic trading replaced paper-based settlement
• rolling settlements replaced the chaotic weekly cycles that had made Mehta’s fraud possible
• disclosure norms tightened, and 
• SEBI gained direct jurisdiction over credit rating agencies, foreign institutional investors, and venture capital. 

It has since:

• gone after the Satyam accounting fraud
• cracked down on the NSE co-location scandal
• tightened rules around related-party transactions
• mandated stricter disclosures for related-party lending, and 
• pushed India toward one of the fastest stock settlement cycles in the world. 

This is the SEBI that gets far less airtime than the controversies. I am talking about the one quietly doing the unglamorous work of ensuring your demat account isn’t a fiction.

That’s the institutional backbone. Now, the part that’s harder to write cleanly.

2024: The Year SEBI Stopped Being Boring

For most of its history, SEBI’s biggest news cycle was a new circular on IPO pricing norms. That changed in January 2023, when US short-seller Hindenburg Research published a report alleging stock manipulation and accounting fraud at the Adani Group. 

This group is India’s most politically prominent conglomerate. SEBI was tasked with investigating. What followed, over the next two years, turned the regulator itself into the story.

Critics accused SEBI of slow and ineffective oversight in its handling of the Adani probe. That episode became the defining flashpoint of the era and steadily eroded investor confidence in the regulator’s impartiality. 

Then, in August 2024, the story took a sharper turn: Hindenburg alleged that SEBI’s own chairperson, Madhabi Puri Buch, had a personal financial stake in offshore entities connected to the very Adani-linked funds SEBI was supposed to be investigating.

What Followed After The Allegation? 

That single allegation opened the floodgates.

• The Congress party alleged that Buch owned a 99% stake in Agora Advisory, a consultancy firm that continued to provide services actively. The party also alleged that Mahindra & Mahindra paid her husband ₹4.78 crore between 2019 and 2021 while SEBI was adjudicating a case involving the company.
• Separately, Congress alleged Buch received rental income, rising from ₹7 lakh to ₹46 lakh a year, from an entity affiliated with pharmaceutical company Wockhardt, which SEBI was simultaneously investigating for insider trading. Do you still think SEBI remains neutral?
• Opposition leaders demanded a Joint Parliamentary Committee probe, with Congress president Mallikarjun Kharge calling it a “massive scandal” and insisting that the government act to eliminate all conflicts of interest in the regulator’s investigation into Adani.
• Rahul Gandhi went further still, framing it not merely as insider trading but as direct conflict of interest. He also accused a “cartel of corporate giants” of having been hollowing out India’s economic institutions from within.
• Buch’s credibility took another hit in October 2024 when she and other SEBI officials skipped a Parliament Public Accounts Committee hearing reviewing regulatory bodies, citing personal reasons. That was some serious a no-show that opposition parties seized on as further evidence of evasiveness.

Where Does That Put SEBI?

To be fair to SEBI and to Buch: SEBI officially rejected Hindenburg’s claims. Further stating that Buch had made all necessary disclosures and had recused herself from any matter involving a potential conflict of interest. Meanwhile, Buch and her husband jointly denied all wrongdoing.

Finance Minister Nirmala Sitharaman publicly acknowledged the allegations while noting that Buch and her husband were actively answering them. 

She further stated that the facts needed to be taken on board. However stopping short of either condemning or fully clearing her. None of the allegations, as of the end of Buch’s term, had resulted in a formal legal finding against her.

Is This “Political Machinery”? Here’s The Honest Case Both Ways

This is where the article needs to be direct, not diplomatic to the point of saying nothing.

The Case That SEBI Has Been Politicized: 

A regulator’s core value is applying the same rulebook to the powerful and the powerless. 

Critics argue that SEBI lost credibility the moment allegations linked its chief to financial interests connected to the very group under investigation. And the regulator’s response was institutional silence rather than an independent inquiry. 

They point to the slow pace of the Adani probe relative to its political stakes. In addition, the chairperson’s absence from parliamentary scrutiny. And a pattern visible across several regulatory appointments in India, not just SEBI. 

Everywhere, senior positions are going to figures seen as closely aligned with the ruling establishment. 

Even legal experts with no political affiliation noted that, regardless of whether anyone ultimately proved the allegations, they raised legitimate questions about the regulator’s impartiality and weakened public trust in the institution.

In this reading, SEBI didn’t become a political weapon overnight. Rather, it became one gradually, through appointments, silences, and an unwillingness to let independent scrutiny run its course.

The Case That This Is A Governance Failure, Not Political Capture: 

Others argue this framing overreaches. SEBI’s investigative machinery of its whole-time members, its enforcement division, and its quasi-judicial powers operates independently of any single chairperson’s personal conduct. 

And the Adani probe, while slow, eventually produced findings and continued regardless of the controversy surrounding Buch. 

Even critical retrospectives acknowledged that Buch’s track record on market oversight and regulatory reform, from derivatives market protections for retail investors to India’s transition to same-day trade settlement, was genuinely substantial. 

Also, that the conflict-of-interest controversy, however serious, overshadowed rather than erased those achievements. On this view, what India witnessed wasn’t SEBI being weaponized by the state.

It was a case study in why regulators worldwide need far stricter conflict-of-interest disclosure norms for anyone stepping in from the private sector, a structural gap rather than a conspiracy.

Both arguments deserve to sit on the table. What isn’t disputable is that trust, the one asset a securities regulator cannot function without, took real damage. And it will take longer to rebuild than it took to lose.

The Handover: A Bureaucrat Steps In

Madhabi Puri Buch’s term ended on 28 February 2025. After that, she was succeeded by Tuhin Kanta Pandey, a career IAS officer who had most recently served as India’s finance secretary.

Pandey took charge in Mumbai just as the role of SEBI faced heightened scrutiny, inheriting the immediate task of restoring the regulator’s credibility after the controversies of the preceding year.

The symbolism matters. Buch had been SEBI’s first chairperson from the private sector. Sure, that was a choice originally celebrated as modernizing and merit-based. 

Her successor represents a return to the traditional pattern: a government bureaucrat, appointed by the same Appointments Committee of the Cabinet chaired by the Prime Minister, moving directly from a top finance ministry post into the regulator’s top job. 

Critics of the “political machinery” thesis will point out that this has been the norm for most of SEBI’s history and isn’t, by itself, evidence of capture. Critics on the other side will note that it does very little to answer the deeper question the Buch episode raised:

whether India’s process for choosing who regulates its markets has enough independence built in, regardless of whether that person comes from government or industry.

What People Genuinely Get Wrong About Sebi

Amid all the political noise, a few real, important facts about SEBI get lost:

• SEBI is not a court, but it has teeth. 

It can levy penalties, ban individuals from the markets, and refer cases for criminal prosecution. Note that these are powers it did not originally have before 1992.

• Most of SEBI’s work has nothing to do with Adani, Buch, or any single controversy. 

Day-to-day, it approves IPO prospectuses, regulates mutual funds, sets margin requirements for derivatives trading, and handles investor grievance redressal. Yes, that’s the unglamorous work that protects millions of retail portfolios every single day.

• SEBI introduced several derivatives reforms during Buch’s tenure with the stated goal of protecting retail investors. 

The role of SEBI tightened its derivatives after data showed that a large majority of individual futures-and-options traders were losing money. Again, that is a reform that drew industry pushback precisely because it ran counter to short-term trading volumes.

• The Adani-Hindenburg matter and the Buch conflict-of-interest allegations are two separate controversies that get conflated. 

One concerns SEBI’s investigation into a company; the other concerns SEBI’s own leadership. Conflating them makes the story feel bigger, but also muddier, than either issue is on its own.

• No formal judicial finding has established that SEBI’s investigations were manipulated. 

The allegations are serious and unresolved in the court of public opinion. But “unresolved” is not the same as “proven.” That distinction often disappears in outrage-driven headlines across the political spectrum.

So What Happens To India’s Investors? 

SEBI’s dual identity of an indispensable market guardian and, in the last two years, a lightning rod for questions about institutional independence isn’t a contradiction so much as a warning. 

Regulators earn trust slowly, through decades of unglamorous rule-making and enforcement. But they can lose a meaningful share of it within a single news cycle. 

The 1992 scam that created the statutory role of SEBI proved that markets without a credible watchdog eat their own investors alive. 

The 2024 controversy proved that a watchdog whose own credibility is in question creates a different, quieter version of the same risk. 

Because a regulator nobody fully trusts is only marginally better than no regulator at all.

None of this means investors should distrust SEBI wholesale, or dismiss its genuine record of reform. It means the conversation about “the role of SEBI” in India can no longer be just about what rules it writes. 

In reality, it has to also be about who gets to write them, who they answer to, and how transparently they disclose their own conflicts. 

That’s not a controversy that ends with one chairperson’s exit. It’s a structural question India’s markets will keep asking until the answer is built into the system itself. Not just promised by whoever happens to be sitting in the chair.