Security Exchange Board of India’s High-Level Committee has proposed a multi-tier conflict-of-interest framework after allegations of ethical misconduct against its former Chairperson.

• Allegation-Triggered Review: SEBI initiated a systematic review after allegations by Hindenburg Research report against the former SEBI Chairperson for having financial links to entities under investigation.
• Probity Gap Identified: The incident revealed gaps in asset disclosure, recusal norms, and investment restrictions for SEBI’s senior leadership.
• Regulatory Integrity at Stake: Any conflict of interest undermines investor trust in capital markets and weakens regulatory credibility.

What is Meant by Conflict of Interest?

• It is a situation in public life where official duties, public interest, and personal interest collide, creating the risk that public decisions may be influenced (Actually or Seemingly) by private considerations.
• Example: Managing director (MD) of the Andaman and Nicobar Islands Integrated Development Corporation (ANIIDCO) was also the Commissioner cum Secretary for the Environment and Forests department, which is responsible for granting forest clearance.
• Competing Priorities: Conflict of interest arises when a public servant’s official duty to act impartially clashes with personal or organisational ties, making it difficult to prioritise public interest without bias.
• Priority Distortion: Decision-making becomes ethically contaminated when personal benefit (financial, familial, or positional) starts to influence or appear to influence official judgment.
• Ethical Risk: Even when no wrongdoing occurs, the perception that a personal interest might influence official actions weakens institutional legitimacy and public confidence.

• • Example: When a former High Court judge immediately joined a political party after retirement, widespread perception of possible bias during past judgments surfaced, affecting trust in judicial impartiality.
• Public Sector Vulnerability: Public servants exercise authority over licensing, enforcement, sanctions, resource allocation, regulation, and thus face high exposure to conflicts that can distort governance outcomes.
  • Example: A recent controversy where the Urban Development Authority officially overseeing land-use approvals while simultaneously holding stakes in a real-estate company, an inherent risk area due to control over scarce land resources.

Forms/Manifestation of ‘Conflict of Interest’ in Decision Making 

• Self-Dealing: Occurs when individuals in government also run private businesses, leading to decisions that prioritize personal gain over public good. 
• Revolving Door Politics: Involves politicians and civil servants transitioning between regulatory roles and industry positions, often shaping laws and regulations to personal advantage, contributing to scandals and legal breaches. 
• Family Interests: Entails employing relatives or engaging in business with family-owned firms, leading to Nepotism and abuse of trust.
• Regulatory Roles: Biased enforcement of rules to benefit known parties. Example: A transport officer not penalizing a relative’s logistics firm.
• Post-Retirement Jobs: Favorable decisions in office with the hope of future employment. Example: Retired officials joining companies they regulated earlier.
• Favouritism: Manifests in various forms such as clientelism, cronyism, and nepotism, where power is used to favor personal connections over merit, undermining the principles of fairness and equality.

Actual vs Potential vs Perceived Conflict of Interest

How Conflict of Interest Affects the Working of Public Servants?

• Erodes Objectivity in Decision-Making: When personal or organisational interests influence judgment, decisions drift away from evidence-based reasoning, creating bias or favouritism.
• Undermines Public Trust in Institutions: Even the perception that officials act in self-interest reduces citizens’ faith in the fairness, neutrality and credibility of governance systems.
• Encourages Corruption & Abuse of Authority: Conflicts create fertile ground for quid-pro-quo, patronage networks, and misuse of discretionary powers, weakening integrity systems.
  • Example: Recently, ED raided on Bihar IAS officer, ex-MLA in money laundering case, reflecting corruption nexus in administration
• Distorts Resource Allocation & Policy Priorities: Scarce public resources (funds, land, licences, subsidies) may be diverted towards private beneficiaries instead of genuine public needs.
  • Example: As highlighted by CAG, In a northeastern state, a road contract was repeatedly awarded to a company linked to a minister’s family, diverting funds away from higher-need districts.
• Reduces Administrative Efficiency & Creates Paralysis: Fear of allegations or backlash leads to risk-averse behaviour; conversely, favouritism leads to poor-quality decisions, delays, and inefficiency.
  • Example: After multiple conflict-of-interest allegations in a state transport department, officers began excessively delaying approvals, fearing scrutiny—resulting in administrative slowdown.
• Damages Institutional Integrity & Professional Culture: Repeated conflict-of-interest incidents signal tolerance for unethical practices, lowering morale among honest officers and promoting a culture of compromise.
  • Example: Frequent allegations in a state mining department created an environment where honest officers felt sidelined, reducing internal cohesion and institutional morale.

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How Can Conflict of Interest in Public Service Be Resolved?

• Mandatory & Continuous Disclosure of Interests: Regular disclosure of assets, liabilities, financial links, consultancy roles, and family interests ensures transparency and pre-emptive scrutiny.
  • Example: SEBI’s 2025 HLC proposal requires public disclosure of assets and liabilities for Chairman, WTMs, and CGM-level officers.
• Strict Recusal from Relevant Decision-Making: Officials must step aside from decisions involving entities or individuals where personal ties or financial interests exist.
  • Example: The Competition Commission of India (CCI) recently recorded recusals from members who had prior professional ties with firms under investigation ensuring impartial adjudication
• Following Ethical Codes: Adhere to service rules, conduct codes, and seek guidance when unsure.
  • Ethical codes act as a compass in situations where legal rules may not fully cover personal dilemmas.
  • Example: The Second Administrative Reforms Commission (ARC-II) urged the creation of a formal “Code of Ethics” for civil servants to guide behaviour in conflict situations
• Develop a Code of Conduct: Establish clear institutional norms defining conflicts, prohibited behaviours, and reporting protocols.
  • A well-crafted code standardises behaviour, removes ambiguity, and aligns officials to expected ethical standards.
  • Example: The Ministry of Corporate Affairs recently updated its code of conduct to include mandatory disclosure of interests and restrictions on accepting gifts from companies under regulatory oversight.
• Cooling-Off Periods After Retirement: Mandatory waiting periods prevent officials from exploiting insider knowledge or networks immediately after leaving office.
  • Example: The new SEBI recommendation imposes a 2-year ban on former members appearing before SEBI, preventing regulatory capture.
•  Independent Ethics Committees & Oversight Bodies: External ethics panels evaluate disclosures, guide recusals, and investigate conflicts, ensuring impartial oversight.
  • Example: The Lokpal and Lokayuktas Act has led to several states establishing independent oversight bodies that review misconduct and conflict-of-interest allegations.
• Whistle-blower Protections & Anonymous Reporting Channels: Secured channels allow employees and citizens to report conflicts without fear, improving detection and deterrence.
  • Example: The 2025 HLC recommends anonymous whistle-blower portals for market participants and employees to report CoI violations directly to SEBI.
• Ethics Training & Culture-Building in Institutions: Values of integrity, objectivity, and impartiality must be embedded through structured ethics training and real-case simulations.
  • Civil servants must cultivate “Integrity, Objectivity and Probity” to navigate ethical dilemmas effectively.
    

Conclusion

A strong conflict-of-interest framework strengthens trust, enhances fairness, and ensures that governance remains uncompromised by private interests.

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