In a significant development, the Supreme Court of India, on January 3, refused to transfer the investigation from the Securities and Exchange Board of India (SEBI) to either a Special Investigation Team (SIT) or the Central Bureau of Investigation (CBI) concerning the Adani-Hindenburg issue. The issue revolves around allegations of stock price manipulation by the Adani group of companies, a prominent Indian corporate entity.
A bench of Chief Justice of India DY Chandrachud, PS Pardiwala and Manoj Misra said the scope of power of the apex court to enter into the regulatory domain of SEBI is limited.
It said the scope of judicial review is only to see whether any fundamental right has been violated. The SC said the facts of the case do not warrant the transfer of the probe to the SIT or other agency. The SC also said there was no material to doubt the investigation carried out by the SEBI.
The verdict stems from a batch of petitions seeking a court-monitored or CBI probe into allegations made by US-based Hindenburg Research against the Adani group. These allegations pertain to violations of the stock market, leading to a sharp decline in the share value of various Adani companies.
The bench said there has been no regulatory failure by SEBI and the market regulator cannot be expected to carry on its functions based on press reports though such reports can act as inputs for SEBI.
The top court asked SEBI to complete within three months its probe into two cases pending out of 24 cases.
The case is related to the allegations (part of a report by short-seller Hindenberg Research) that Adani had inflated its share prices. After these allegations were published, it led to a sharp fall in the share value of various Adani companies, reportedly to the tune of USD 100 billion.
The Adani Group has dismissed the charges as lies, saying it complies with all laws and disclosure requirements.
Various petitions were filed alleging that changes to the Securities and Exchange Board of India Act (SEBI) had provided a shield and an excuse for the Adani Group’s regulatory contraventions and market manipulations to remain undetected.
Earlier, petitions alleged that changes to the SEBI Act provided cover for Adani Group’s regulatory contraventions. In response, the Supreme Court instructed SEBI to conduct an independent probe and formed an expert committee headed by retired Supreme Court judge Justice AM Sapre. The committee, in its May 2023 report, found no prima facie lapses on SEBI’s part.
While reserving the verdict, the Supreme Court had said it has no reason to “discredit” SEBI, which probed allegations against the Adani group, as there was no material before it to doubt what the market regulator has done and the court does not have to treat what was set out in the Hindenburg report as a “true state of affairs”.
It had observed that it cannot ask a statutory regulator to take as a “gospel truth” something which was published in the media.
“Reliance on newspaper reports and third-party organisations to question the statutory regulator does not inspire confidence. They can be treated as inputs but not conclusive evidence to doubt the SEBI probe,” the order said.
The Supreme Court had, in March of the previous year, established a six-member committee to investigate regulatory failures in dealing with alleged violations of securities market laws by the Adani Group and other companies. On November 24, 2023, a panel of three judges reserved its verdict on the matter.
Advocate Prashant Bhushan, representing one of the petitioners, argued during the hearings, emphasising factual revelations in the Hindenburg report. The Supreme Court rejected attempts to accept Hindenburg’s claims as factual truth, asserting the need for SEBI’s investigation.
It is notable here that during the hearing the SC bench had rejected advocate Prashant Bhushan’s attempts to take Hindenburg’s claims as gospel truth on face value. “We don’t have to accept the Hindenburg report as ipso facto factually correct. That is why we asked SEBI to investigate…” CJI had said.
“Mr. Bhushan, I do not think you can ask a financial regulator to take something printed in the newspaper. This does not discredit SEBI. Should SEBI now follow journalists?”, the CJI had asked Bhushan during the hearing.
He said it was for the top court to see whether the investigation done by the SEBI was credible or not and whether some other independent organisation or a Special Investigation Team (SIT) needs to be formed to investigate it.
In January this year, Hindenburg Research accused the Adani Group of fraud and stock price manipulation. The charges were denied by Gautam Adani who claimed in July that no regulatory failure was found by the expert committee which was constituted by the Supreme Court.
In May this year, a 6-member expert panel had failed to find any wrongdoing on SEBI’s part regarding Adani Group. The committee concluded that the Adani Group has disclosed the information of all the beneficial owners of the business. The report also lists all the details of these beneficial owners as obtained from the SEBI.
The Adani Group dismissed the Hindenburg Research report as a ‘malicious combination of selective misinformation.’ Despite the controversy, the Supreme Court’s recent decision upholds SEBI’s role in the investigation, rejecting calls for a transfer to other agencies.
(With inputs from ANI)