Today, the Supreme Court declined to order an SIT (Special Investigation Team) probe into the allegations made in the Hindenburg Research report regarding stock price manipulations by the Adani group of companies.
The Court determined that there was no basis to question the ongoing investigation by the Securities and Exchange Board of India (SEBI). It also concluded that there were no valid reasons to instruct SEBI to revoke its amendments on FPI (Foreign Portfolio Investor) and LODR (Listing Obligations and Disclosure Requirements) regulations, as these regulations were found to be free from any deficiencies.
Additionally, the Court acknowledged that SEBI had completed its investigation in 22 out of 24 cases. Considering the assurance from the Solicitor General, the Court directed SEBI to conclude the investigation in the remaining 2 cases within three months.
The Court dismissed the reliance on newspaper reports and the Organized Crime and Corruption Reporting Project (OCCRP) report by the petitioners to cast doubt on the SEBI probe. It emphasized that unsubstantiated news reports and third-party organizations cannot be used to question the investigation conducted by a statutory regulator.
While rejecting the petitioners’ arguments about a conflict of interest within the Expert Committee, the Court stated that the Government of India and SEBI should consider the committee’s recommendations to strengthen the interests of Indian investors.
Furthermore, the Government of India and SEBI were urged to examine whether the Hindenburg report on short selling violated any laws and, if so, take appropriate legal action.
In conclusion, the Court cautioned against lawyers filing Public Interest Litigations without thorough research and relying on unverified reports.
The three-judge bench, led by Chief Justice of India DY Chandrachud, along with Justices JB Pardiwala and Manoj Misra, had reserved the judgment on November 24 of the previous year. The PILs sought a court-monitored probe into the allegations made in the Hindenburg Research report regarding stock price manipulations by the Adani group of companies. During the hearings, the Bench had expressed confidence in the SEBI investigation and showed reluctance to accept arguments against the impartiality of the expert committee members.
Background:
On January 24, 2023, US-based short-selling firm Hindenburg Research published a damning report accusing the Adani Group of widespread manipulations and malpractices to artificially inflate its stock prices. In response, the Adani Group vehemently denied the allegations with a comprehensive 413-page reply.
Following this, Public Interest Litigations (PILs) were filed in the Supreme Court by Advocates Vishal Tiwari, ML Sharma, Congress leader Dr. Jaya Thakur, and activist Anamika Jaiswal, seeking a court-monitored probe. On March 2, the Supreme Court formed a committee to investigate and examine any regulatory failure in the matter. The SEBI was also instructed to probe the allegations against the Adani group.
The expert committee, chaired by former Supreme Court judge Justice AM Sapre, included Mr OP Bhat (former Chairman of SBI), retired Justice JP Devadhar, Mr KV Kamath, Mr Nandan Nilekani, and Mr Somasekharan Sundaresan.
The Supreme Court initially granted two months for SEBI to complete its investigation, which ended on May 2. However, SEBI requested a six-month extension, citing the complexity of transactions and the need to examine overseas regulators’ information under the Multilateral Memorandum of Understanding (MMOU). The Supreme Court extended the deadline to August 14, 2023, and later granted an additional 15 days upon SEBI’s request, noting substantial progress in the investigation.
Here’s more on the Adani-Hindenburg case:
In January 2023, Hindenburg Research released a report accusing the Gautam Adani-led group of “brazen accounting fraud” and “stock manipulation.” Despite the conglomerate dismissing the report as “unresearched” and “maliciously mischievous,” the allegations led to a significant decline in Adani group stocks, resulting in a loss of over $140 billion within days and the cancellation of a ₹20,000 crore share sale.
To address the concerns raised, the Supreme Court established a six-member panel in March, headed by retired Supreme Court judge AM Sapre. The panel was tasked with investigating regulatory failures by SEBI and alleged breaches of laws by the Adani group. However, in its report submitted two months later, the committee stated that it couldn’t substantiate the allegations of stock price manipulation or violation of Minimum Public Shareholding (MPS) norms by Adani group companies “at this stage.”
Simultaneously, the panel raised concerns about the existing Foreign Portfolio Investors (FPI) regulations. In November, the Supreme Court noted that appointing an SIT (Special Investigation Team) to examine alleged violations of MPS norms by Adani group companies would be inappropriate without evidence of lapses by SEBI, which was already conducting an investigation.
These developments underscore the complex and contentious nature of the Adani-Hindenburg case, with the legal and regulatory landscape continuing to evolve.
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