SEBI’s Witch-hunt against a Reporter in the Bharat Financial Inclusion Case Can Have a Chilling Effect on Business Media Freedom
The Securities and Exchange Board of India (SEBI) recently announced that it wants to rein-in financial influencers luring people with unsolicited investment advice on social media platforms. It is also working hard to regulate journalists who have brazenly misused their position for front-running their stock recommendations or help in pump-and-dump schemes. The regulator’s attempt to make the media more accountable and disciplined is most welcome; but its recent investigation and adjudication proceedings against Ishita Guha, a reporter at ET Now, is deeply troubling in its over-zealousness in alleging    fraud and unfair trade practices, and  its understanding of the role of the media is also questionable. ( oct-2022/adjudication-order-in-respect-of-ms-ishita-guha-in-the-matter-of-trading-activities-of-certain-entities-in-the-scrip-of-bharat-financial-inclusion-ltd-and-indusind-bank-limited_64541.html).
Here’s what happened.
Breaking Bad: In April 2019, the journalist, attending a hearing of the national company law tribunal (NCLT), reported to her network, ET Now, that the tribunal had approved a merger between Bharat Financial Inclusion Ltd (BFIL) and IndusInd Bank Ltd on 23 April 2019. This was untrue. Although NCLT was expected to clear the merger, it chose to reserve its orders. The merger was indeed approved, as was expected, on 10 June 2019.
Typical of news channels that are in a hurry to break news, ET Now apparently interviewed PH Ravikumar, non-executive chairperson of BFIL, on 24 April 2019, seeking his comments on the ruling.
The media, while reporting developing stories, routinely look for ‘sound bites’ to perk up ‘breaking news’. If a potential interviewee has not read a report or followed a development, journalists offer them a quick summary based on their understanding. This forms the basis of their remarks on television and, sometimes, explains the vague and irrelevant remarks that we hear. It is how the broadcast networks work in India.
In this case, BFIL’s chairman, Mr Ravikumar, with an appropriate disclaimer that he had not read the order, responded to ET Now’s questions based on what he had been told about the NCLT ruling. NCLT referred the matter of the TV channel jumping the gun to SEBI in May 2019, leading to an investigation. It is important to know that the BFIL-IndusInd Bank merger was officially announced on 14 October 2017; NCLT’s approval was unlikely to have a significant impact on prices and it did not. There was no serious opposition to the merger that would have led to NCLT rejecting it. On the day of the hearing, stock prices rose a little over 1% and around 3% after the chairman’s interview was aired—this is not a huge price movement; but SEBI’s show-cause notice (SCN) makes it appear significant. 
SEBI could have completed the investigation in a few days, had it made an effort to understand how the media worked. Ishita Guha, covering NCLT proceedings, had clearly told the network that NCLT had yet to ‘publish the written order’. Or was SEBI so aggressive because BFIL (previously SKS Microfinance), was once a high-profile company with a high-profile board? Intriguingly, Mr Ravikumar once headed a commodity exchange and would have been known to SEBI officials and fully cognisant of disclosure and reporting requirements; but even this did not cut ice with the regulator.
Whatever the reason, SEBI decided to issue an SCN and expand the investigation into the psychographics of whether the journalist had ‘knowingly’ provided incorrect information with a ‘predetermined intent to manipulate scrip prices’ and to ‘influence decision of investors’. Having decided such a wide canvass, SEBI’s SCN reads like a witch-hunt.
Some effort to understand how the media work would have made all the difference. In the hurry to get the latest news and developing information out to the people, mistakes happen. Egregious misreporting, falsification of facts or data, front-running of stock recommendations with the intent to manipulate stock prices or aid pump-and-dump schemes needs stringent action and SEBI has done well on that front with its action against two anchors of a leading television network
This case is different. This was a developing story reported by a young journalist on the ground. The decision to interview the chairman of BFIL about the NCLT order had nothing to do with her and was a decision, probably, made by the channel. ET Now told SEBI that Ms Guha was present in court and had got her information from lawyers. Court reporters routinely check and confirm developments with lawyers for accuracy and, often, because it is not always possible to hear what the judge has said in an open court, if you are not in a vantage position. She refused to disclose her sources. SEBI’s SCN accused her of acting in a ‘reckless and careless manner’ by providing ‘false/misleading’ information and trying to shift responsibility to lawyers. Stunningly, her ‘behaviour’, according to SEBI’s investigator, fell under the definition of ‘fraud’ as defined under 2(1)(c)(5) of its regulations on prevention of fraud and unfair trade practices (PFUTP)! 
So it decided to proceed against the reporter and her name will remain permanently on SEBI records in a manner that could adversely impact her career. The process outlined in the detailed order hardly excuses SEBI’s tame exoneration in the end. Her advocate Arjun Natarajan, correctly, asked, “What influenced the formation of an opinion that a journalist should be accused of securities market fraud for no reason other than a news report lay at the heart of the adjudicating process involved.” 
All that was required of the regulator was to check if the network had corrected the report with appropriate visibility—it had done so and all parties involved had issued clarifications. By applying the principle of ‘preponderance of probability’ it should have been clear, without wasting too much time, whether there was a ‘motive’ behind the decision to rush the interview.
Instead, SEBI chose to convert the NCLT reference into a sweeping investigation specifically targeting an individual reporter, doesn’t matter that the final order found no merit in these wild charges.
Advocate PR Ramesh, a senior securities law expert with a long stint at the regulator, says, the order “is an attempt to foist a non-existing fiduciary obligation on TV channels and their reporters on the ground that they are making comments about securities markets. It is tough to establish that people acted on the information. It is like saying a reporter, who is reporting on a riot, is responsible for causing and aggravating violent actions.
It is, indeed, true that business journalists have to be conscious of the financial implications for investors, while reporting price-sensitive market information. At a time when misinformation, defamation and slander is rife in the guise of panel discussions on social and political issues or actions of Central investigation agencies, SEBI’s decision to proceed on the basis of fraud, in this case, is downright absurd. Advocate Natarajan asks, in the absence of any material to show that Ms Guha was “involved in any deceit, manipulation or conscious or deliberate misrepresentation" how would the PFUTP regulations apply in this case?”
He correctly says: “The SCN is an extraordinary one and is a deep intervention by SEBI into the field of perceived errors in the profession of journalism without any nexus whatsoever with misrepresentation in the course of dealing in securities. The core issue that falls for consideration is whether a journalist’s reportage in good faith of her understanding of what transpired in a Court proceeding to her employer, (which is ultimately not shown to be untrue in any material particular), can at all amount to planting false or misleading news in connection with dealing in securities, under the PFUTP Regulations.
It is also interesting that SEBI did not go after the company for failing to clarify the media report immediately after it was clear that NCLT had reserved its orders—as is required under listing rules. Instead, it persisted with trumped up charges against the reporter.
As advocate Natarajan points out, SEBI even spent time investigating whether the journalist was involved in synchronised trades.  He said: “No extent of extrapolating a perceived error in reportage of market transactions would bring journalistic coverage into the domain of fraud in the securities market.”
All of this makes the case worthy of a wider discussion, especially by the business press. Indeed, SEBI has aggressively investigated and brought action against the media in the past couple of years. It has expanded its investigation into a large television network for front-running stock recommendations and participating in price-ramping efforts. Since January 2021, it has already issued orders against two talk show hosts for such manipulation. These efforts are important and necessary, but if the regulator converts such investigations into a witch-hunt like the Ishita Guha case, it would have a chilling impact on media reporting.
While investigating journalists or attempting to rein-in social media influencers, SEBI must make an effort to understand how the media business has changed. Today, corporate houses as well as market intermediaries with large advertising and marketing budgets have considerable influence over editorial decisions. They work through PR firms and ensure they have a say in programme content, influence, discussants/participants on the show and, at times, the editorial slant that is adopted. It is the same with social media influencers. The majority of influencers will tailor content based on what they are paid by businesses. Corporate budgets dictate how many influencers will be used and which content is replicated for a fee until it becomes viral or manipulates public perception Many social media companies also sell ‘trends’ for a price!
If SEBI is serious about regulating the media as well as social media, it needs to follow the money, rather than waste valuable time on pointless adjudication. It will also be ridiculous if the market regulator suddenly becomes the arbiter of professional care and due diligence required from a journalist doing her job.
2 months ago
What about Coleman & Co. Ltd. (B.C.C.L.), commonly known as The Times Group, India's largest media group. Not listing Bharat Nidhi Shares in Stock exchanges. ET now also I think owned by them
2 months ago
I understand the nature of current practices in the media industry when it comes to reporting. In case of a mistake, shouldn't there be liabilities imposed on the entity making the mistake? The regulator should make sure that reporters understand the seriousness of the issue and how incorrect reporting could lead to financial losses for investors trading on the news flow (and with possible malafide / collusion). It is a serious business and mistakes cannot go without any penalties.

I see your point on the regulator going after the individual reporter here ... but it appears that the media house has washed their hands off and thrown their employee under the bus. Cannot blame the regulator for this, can you?
Replied to media.ncsr8 comment 2 months ago
Maybe. you should read again to understand what is said. WHERE was the mistake??? As Dr Ganatra said below, NCLT often reads and order in open court and issues the judgement. I am NOT going to be put in a position to hold a brief for a media group and a TV channel -- but do read first. Also let us not be so smug as to have ABSURDLY high standards for reporters when we are all okay with what mainstream channels are doing every day on issues pertaining to films, religion and politics! Further, as the article clearly says -- the channel had issued a correction when it was pointed out!
2 months ago
Your article unsuccessfully tries to criticize SEBI's action, with the benefit of hindsight. The false story 'broken' by reporter on 23 April 2019 was not just untrue, but did constitute price sensitive information. Just because stock did not move appreciably next day and that the merger was subsequently approved on 10 June 2019, does not make it unimportant. The reporter, and channel, need to be disciplined for jumping the gun. Your channel would have been amongst the first ones to criticize SEBI, if no action had been taken! Damned if I do, damned if I don't!
Replied to pgodbole comment 2 months ago
You are entitled to your views and you may have a problem with Moneylife too. But maybe you need to read again to understand the issue - or its seriousness -- if any. Beyond that, it is your perception and you are welcome to it.
2 months ago
Arguing with SEBI is like arguing with a fool -- they will drag you down to their level and beat you with a broomstick. It's pointless.
2 months ago
As an Insolvency Professional myself I am aware of NCLT's adjudication process. By and large NCLT pronounces order and releases the order weeks or months later. So based on her first hand experience of NCLT hearing if she reported the merger, she was bang on. The order later also vindicated her reporting. In this background allegations of front running and market manipulations are frivolous. She can hope to impose cost on SEBI for targetting her. There doesn't seem to be evidence of her alleged involvement in synchronised trading. Wonder why is SEBI shooting from hip!
2 months ago
The regulator is following the footsteps of this government. Stifle freedom . It was lucky that this journalist could find good legal help. I hope that ET Now stands by her.
Replied to balakrishnanr comment 2 months ago
Very true
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