Adani-Hindenburg row: SC asks SEBI to probe allegations of manipulations of stock prices, sets up panel to look into investor protection

The committee has been directed to conclude the probe within two months and file a report before it in a sealed cover

March 2, 2023

Adani-Hindenburg: SC tells SEBI to finish the probe and submit report within two months

The Supreme Court on Thursday asked the SEBI to probe within two months allegations of stock price manipulation by the Adani Group and any lapses in regulatory disclosures, and also set up a six-member panel to look into the protection of Indian investors after a damning report by a US short seller wiped out more than USD 140 billion of the conglomerate’s market value.

The top court while directing the setting up of a six-member committee headed by former apex court judge Justice A M Sapre for the assessment of the extant regulatory framework and for making recommendations to strengthen the process said it was appropriate to set up such a panel of experts in order to “protect Indian investors against the volatility of the kind which has been witnessed in the recent past”.

The other members of the panel are O P Bhat (former Chairman of SBI), Justice J P Devadhar (retired judge of the Bombay High Court), K V Kamath (former head of New Development Bank of BRICS and Infosys Limited), Nandan Nilekani (co-founder of IT firm Infosys and former head of Unique Identification Authority of India) and Somasekharan Sundaresan, a lawyer and securities and regulatory expert.

The court-appointed Justice Sapre panel, which will be provided assistance by the Centre and other statutory agencies including the SEBI chairperson, will have to submit its report in a sealed cover within two months, said the bench which comprised Chief Justice D Y Chandrachud and Justices P S Narasimha and J B Pardiwala. The panel will also suggest measures to strengthen investor awareness, the court said, adding the committee will probe whether there was any regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group or other companies.

Reacting to the court directions, Adani Group Chairman Gautam Adani tweeted: “The Adani Group welcomes the order of the Hon’ble Supreme Court. It will bring finality in a time-bound manner. The truth will prevail.”

The bench took note of the ongoing probe by the Securities and Exchange Board of India (SEBI). It said the market regulator has not expressly referred to an investigation into the alleged violation of the Securities Contracts (Regulation) Rules 1957 which provide for the maintenance of minimum public shareholding in a public limited company.

“Similarly, there may be various other allegations that SEBI must include in its investigation,” it said, directing the SEBI also to investigate whether there was any violation of the Securities Contracts (Regulation) Rules. The SEBI will also probe “whether there has been a failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI, in accordance with law”, it ordered, adding the probe will also look into whether there was any manipulation of stock prices in contravention of existing laws.

The top court made it clear that the market regulator can also go beyond its directions with regard to the contours of the ongoing investigation. “SEBI shall expeditiously conclude the investigation within two months and file a status report.” Dealing with the details of the court-appointed panel, the 9-page order, penned by the CJI, said SEBI shall apprise the expert committee of the action that it has taken in furtherance of the directions during the ongoing investigation. The setting up of a panel of domain experts does not divest SEBI of its powers or responsibilities in continuing with its investigation into the recent volatility in the securities market, it added.

“In order to protect Indian investors against the volatility of the kind which has been witnessed in the recent past, we are of the view that it is appropriate to constitute an Expert Committee for the assessment of the extant regulatory framework and for making recommendations to strengthen it.”

The scope and ambit of the court-appointed panel will be to provide an overall assessment of the situation including the relevant causal factors which have led to the volatility in the securities market in the recent past. The panel will suggest measures to “(i) strengthen the statutory and/or regulatory framework and (ii) secure compliance with the existing framework for the protection of investors”, the court said.

“The Chairperson of the SEBI is requested to ensure that all required information is provided to the Committee. All agencies of the Union government including agencies connected with financial regulation, fiscal agencies, and law enforcement agencies shall cooperate with the Committee. The Committee is at liberty to seek recourse to external experts in its work,” the court said. The honorarium payable to the members of the Committee shall be fixed by the Chairperson and shall be borne by the Union government, it added. The Secretary of the Union Finance Ministry shall nominate a senior officer who will act as a nodal officer to provide logistical assistance to the Committee, it said.

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