Adani-Hindeburg :'How To Protect Indian Investors?', Supreme Court Seeks Views Of Centre, SEBI On Strengthening Regulatory Framework

In the wake of Adani-Hindenburg issue, the Supreme Court on Friday expressed concerns about protecting Indian investors and sought the views of the Union Government and the Securities and Exchange Board of India (SEBI) on suggestions to improve the regulatory mechanism.

The bench led by Chief Justice of India DY Chandrachud also proposed the constitution of an expert committee to give suggestions on strengthening the regulatory framework. The bench was hearing two petitions which sought investigation about the report of US-based shortselling firm Hindenburg Research, which caused shockwaves in the stockmarket by affecting the shareprices of Adani group companies. The bench has posted the matter to Monday(February 13) asking the Solicitor General of India to get back after instructions from the Ministry.

As soon as the matter was taken, CJI Chandrachud went into a discussion with his colleagues in the bench Justices PS Narasimha and JB Pardiwala for about five minutes. After the discussion, CJI told Solicitor General of India Tushar Mehta, who was representing the SEBI :

"This is just an open dialogue. They have brought an issue before the Court. What is of concern is how do we ensure the protection of Indian investors? What happened here was short-selling. Probably SEBI is also doing its investigation. Please tell your officers also this is no witchunt that we are planning to do. Suppose as a result of a short-sale, the value of shares can get depressed. The purchaser then gets the benefit of the difference. If it is happening on a small scale, nobody bothers. But if it happens in a large scale, as per some reports, the total loss suffered by Indian investors go in the range of several lakhs crores of rupees. How do we ensure that going in future, we have robust mechanisms? Because today, capital is moving in and out of India seamlessly. How do we ensure in future that Indian investors are protected? Everybody is in the market now. It is said that the loss is of over ten lakh crores. How do we ensure that they are protected? How do we ensure that this does not happen in future? What role do we envisage for SEBI? For example, in a different context, you have circuit breakers."

"It is a little premature for me to immediately answer. The trigger point was the (Hindenburg) report, which was beyond our territorial jurisdiction. There are regulations which deal with the concerns.  We are also concerned", SG said. SG added that the SEBI is also closely monitoring the situation.

CJI then put forth the suggestion to constitute a committee.

"One of the suggestion is to have some committee...We do not want to cast any doubt on the SEBI or the regulatory agencies. But the suggestion is to have a broader thought process so that some inputs can be obtained. And then the Government can take a call as to whether some modification is required of the statute, whether a modification for the regulatory framework is required. Beyond a certain stage we won't enter into the policy domain, but there should be a mechanism that it doesn't happen in the future. This is the call that the govt has to take.We need to put into place a mechanism which will ensure that this will not happen in the future".

CJI continued : My brother Justice Narasimha has a suggestion, come back on Monday about the existing regime. How to strengthen the existing regime and if that would help the process? Can we contemplate having an expert committee, which can be drawn from experts from securities market, international banking sector, and also a former judge as a wise guiding figure. Ultimately the inputs will have to come from domain experts. We are also not sure. We are just thinking aloud. We can give very vital role to SEBI also. We also need to think of strengthening SEBI so that it has better provisions to deal with in future. It is a new world. India is not what it was in 1990s. Also stock market is a place where only high value investors invest. It is also a place where, with the changing tax regime,  a wide spectrum of middle class invest."

"SEBI has been looking into from whatever statutory regime is existing. We will be able to satisfy your lordships", SG said.

"You can also have consultation with experts from Ministry of Finance. Give us a framework. These are just loud thinking. We are conscious that whatever we say may also affect the stock market. It runs largely on sentiments. So we are cautious", CJI replied.  Although the petitions are not very well-thought of, the CJI said "sometimes we need to go beyond that".

Following this exchange, the bench dictated the order recording :

"We have indicated to the Solicitor General the concerns with regard to ensuring that the regulatory mechanisms within the country are duly strengthened so as to ensure that Indian investors are protected against certain volatility, the kind of which was witnessed in the recent two weeks. That in turn would require due assessment of existing regulatory framework and the need for strengthening regulatory framework in the interest of the investors and the stable operations of the securities market. 

We have also suggested to the SG if they are willing to accede to the suggestion for a committee. If the Union of India is inclined to accept the suggestion, necessary submissions can be urged on the constitution of the committee.

The SG assured that SEBI is closely monitoring the situation. We clarify that the above are not intended to be any reflection on the discharge of its statutory functions by the SEBI or any statutory authority".

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