Mint Explainer: Sebi’s Madhabi Puri Buch and the fuss over her ICICI payouts

Congress party politician Pawan Khera has alleged that the chairperson of India’s equity and commodities market regulator, Madhabi Puri Buch, received ₹16.8 crore in benefits from her ex-employer ICICI Group. ICICI Bank Ltd and Buch have denied the allegations. But Khera has intensified his charges, alleging that Buch’s post-retiral benefits from ICICI Group were higher than the salary she drew from the private lender.

While Khera has not disclosed his source, his information probably comes from Buch’s finances filed with the Income Tax department. Mint explains the post-retiral benefits Khera’s dredged up, how taxation works on such benefits, and other aspects related to the latest allegations against Buch, the chair of the Securities and Exchange Board of India.

Also read | Why Sebi and Indian real estate investment trusts are in Hindenburg’s crossfire

What retiral benefits did Buch allegedly receive?

Khera has alleged that Buch, who joined Sebi as a wholetime director in 2017, received over ₹12 crore from ICICI Bank between 2017-18 and 2023-24. In that period, Buch earned an additional ₹22 lakh from ICICI Prudential and ₹2.8 crore from exercising employee stock ownership plans for 2021-22 and 2022-23, according to Khera. Tax amounting to over ₹1 crore was deducted at source on those Esops.

However, no salary was directly paid by ICICI Group to Buch in that period. The ₹16.8 crore mentioned in Khera’s allegations is classified as perquisite income, which refers to benefits received beyond a monthly salary, including income from Esops.

Esops are employee benefit plans where workers gain ownership interests in a company through shares. These shares are typically granted overtime to ensure employee loyalty and retention.

Sumit Agrawal, founder of Regstreet Law Advisors and a former Sebi officer, explained that the Esop policy adheres to the Companies Act of 2013 and Sebi regulations on share-based employee benefits. ESOPs are taxed in two stages.

The first, when an employee exercises their stock options, which is taxed as part of the employee’s salary under ‘income from salaries’. (The employer must also withhold tax on this amount). And subsequently, when the employee sells the shares the resulting gain is taxed as capital gains, with the rate depending on the holding period of the shares.

Also read | Sebi’s Madhabi Buch worked at ICICI and a PE firm between 2011 and 2013

To illustrate, consider company ‘A’. An employee hired in 2010 is offered 100 shares at ₹100 each. The employee receives 30 shares in 2011, 30 in 2012, and the remaining 40 in 2013. If the employee earns over ₹50 lakh annually, they incur a tax of about 42%, meaning they pay ₹142 per share to acquire them. Tax of ₹142 is deducted from the employee’s salary when the shares are acquired. If the shares are sold in May 2012 at ₹150 per share, the profit is ₹8 will be subject to capital gains tax. If the vesting and sale of the shares happen within a year, short-term capital gains tax will apply.

Khera also claimed that Buch’s average annual salary at ICICI Bank was ₹1.30 crore, while her average pension and other retirement benefits totaled ₹2.77 crore.

How many stocks and stock options does Buch own?

There is no clarity on this aspect since ICICI Bank is not required to disclose the outstanding Esops of former employees. However, according to exchange filings dated 5 September 2008, Buch had 405,000 ICICI Bank stock options outstanding and owned 98,861 shares.

This filing was made before Buch left ICICI Bank in January 2009 to become the chief executive of ICICI Securities. According to the bank’s policy, each ICICI Bank stock option is equivalent to one share upon exercise, and these stock options are granted to its executives at no cost.

As per ICICI Group’s policy at the time the Esops were granted to Buch, employees who had left the group had a choice to exercise their Esops anytime up to a period of 10 years from the date of vesting. Employees who retire from the group have no cap on when to sell the shares.

Also read | Offshore fund used by Buch nestled in Bermuda, not Mauritius

Should disclosures of Esops be required?

Ritika Nayyar, partner at law firm Singhania & Co., said disclosures of benefits are a generally accepted practice to avoid any conflict of interest. “It is not just holdings in listed companies, but even unlisted companies which is asked for nowadays,” she said.

Agrawal of Regstreet also said Sebi regulations on an employees’ service, which apply to officers up to the grade of executive directors, does not include provisions requiring the disclosure of Esops received from previous employment. Similarly, the Sebi (Terms and Conditions of Service of Chairman and Members) Rules lack such disclosure requirements.

Also read | Full disclosure for Sebi chief: Key to preventing next Hindenburg-like scandal