Hindenburg Report Alone Not Sufficient For Inquiry Against SEBI Chief, Produce Additional Materials : Lokpal To Complainants
The Lokpal asked the complainants to explain the efforts taken by them to verify the credibility of the Hindenburg report
Justice AM Khanwilkar, Lokpal Chairperson
Refusing to accept the Hindenburg Report published on August 8 on its face value, the Lokpal has deferred action on two complaints filed against the Chairperson of the Securities and Exchange Board of India (SEBI), asking the complainants to produce additional "foundational and jurisdictional facts."
The anti-corruption body headed by former Supreme Court judge Justice AM Khanwilkar said that the Lokpal cannot act solely based on the Hindenburg research report which raised allegations of quid pro quo against the SEBI Chief Madhabi Puri Buch on the ground that she had investments in offshore funds linked to Adani group of companies. One of the complaints was filed by Lok Sabha MP Mahua Moitra.
Regarding Moitra's complaint, Lokpal said that it was primarily founded on the Hindenburg report and "it falls short of persuading us to take a firm view that there exists a prima facie case as per Section 20 of the Lokpal and Lokayuktas Act 2013 to proceed in the matter including to direct a preliminary inquiry or investigation..."
As regards the other complaint, the Lokpal said that the complainant has rushed to file the complaint soon after downloading the Hindenburg report and merely reproduced the factual narrative in the report without verifying its contents and collating credible material.
The Lokpal asked the complainants to explain the efforts taken by them to verify the authenticity and credibility of the Hindenburg report and to show how the acts alleged against the SEBI Chief would come under the ambit of the Prevention of Corruption Act.
The Lokpal also referred to the Supreme Court's judgment delivered on January 3 this year, endorsing the SEBI investigation against the Adani group of companies. It also referred to a pending application filed in the Supreme Court based on the latest Hindenburg report. Therefore, the Lokpal said that it has to await the outcome of the Supreme Court's decision on the pending application as well as the result of the SEBI investigation in the two remaining cases out of the 24 inquiries initiated by it against the Adani group of companies. It also noted that the Supreme Court had expressed concerns about the conduct of Hindenburg Research and directed Union authorities to inquire into their short-selling activities.
The Lokpal also seemed critical of Mahua Moitra's act of placing her complaint in the public domain, saying that was done despite the mandate of Rule 4 of the Lokpal (Complaint) Rules, 2020 which protects the identity of both the complainant and the public servant till the inquiry is over. The order therefore does not mention the names of any individual.
The Lokpal has posted the matters to October 17, asking both the complainants to file affidavits explicating the foundational or jurisdictional facts, such as :
(1) Articulate the allegations against concerned person which may constitute an "offence of corruption" within the meaning of the Prevention of Corruption Act, 1988, 'provision wise'.
(2) State whether the dictum, including obiter of the Supreme Court in the stated decision about the credibility of the earlier report (dated 24.01.2023) of Hindenburg Research and also directing investigation agencies of the Union Government - to probe whether the loss suffered by Indian investors was due to its (Hindenburg Research) conduct or any other entity in taking short positions involving infraction of the law and if so to take action in that regard, would or would not come in the way of the Lokpal to examine the recent report (dated 10.08.2024) of the same author (Hindenburg Research) on related matters.
(3) State as to why the finding and opinion recorded by the Supreme Court in its decision dated 03.01.2024 regarding fair and comprehensive investigation by SEBI and refusal to interfere with the outcome thereof; and, in the matter of just and proper amendments effected in FPI Regulations, which enures in favour of the entire Administration of SEBI including the XXXXXX would not come in the way of the Lokpal to examine the allegations in the recent report of Hindenburg Research.
(4) The fulcrum of the allegations against the XXXXXX of SEBI (about quid pro quo) rests on the outcome of the inquiries conducted by SEBI or so to say compatible to as in the earlier report of Hindenburg Research and/or takes the colour therefrom, which has been duly examined and critically commented upon by the Supreme Court. If not, why and how it si different and mutually exclusive cause of action, in the perception of the Complainant.
(5) State whether the case of the Complainant(s) is that, that the recent report of Hindenburg Research is limited to the two pending (out of twenty-four) inquiries before SEBI, mentioned by the Supreme Court in its decision dated 03.01.2024. If so, whether it wil be open to the Lokpal to entertain the allegations in that regard considering Section 15 of the Act of 2013.
(6) The details regarding the efforts made by the respective Complainant to verify the authenticity and credibility of the claims in the recent report of Hindenburg Research published on 10.08.2024.
(7) State as to how the personal investments made or income earned by the named public servant and more so, prior to entering the office as XXXX or as XXXX of SEBI, constitute an offence of corruption within the meaning of the Prevention of Corruption Act, 1988.
(8) State as to how non-disclosure or non-declaration of such investments and income would constitute an offence of corruption within the meaning of the Prevention of Corruption Act, 1988, provision wise. For, certain acts of commission or omission, may at best tantamount to an impropriety, but need not necessarily be reckoned as an illegality or for that matter an offence of corruption, ascribable to Prevention of Corruption Act, 1988.
(9) Also state whether such investments or income comes within the period specified in Section 53 of the Act of 2013, to enable the Lokpal to exercise jurisdiction envisaged in the Act of 2013.
(10) State whether the subject matter of the concerned complaints in issue before the Supreme Court by way of an application, as per the news published in the national newspapers after publication of the recent report of Hindenburg Research. If yes, will Section 51 of the Act of 2013 come in the way of the Lokpal to inquire into the same subject matter.
The Lokpal clarified that its observations may not be construed as an expression of opinion one way or the other. "This direction is only a procedural order, issued for testing the question of tenability of the concerned complaint and to record a prima facie view as required under Section 20 of the Act of 2013, ni the peculiar fact situation," it said.
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The Lokpal said that though the order passed at this stage was not required to be published, it was constrained to do so since the complaint was publicised.
"Nonetheless, we deem it appropriate to direct the Registry to upload this order online for the benefit of al concerned, as an exception, particularly to obviate the possibility of speculation and misinformation including politicization of the matter, but after redacting the names of al individuals and entities- wherever it appears in this order," the Lokpal ordered.
The anti-corruption authority, headed by former Supreme Court Justice A.M. Khanwilkar, also consisted of the following members: Justice L. Narayana Swamy, Justice Sanjay Yadav, Sushil Chandra, Justice Ritu Raj Awasthi, Pankaj Kumar, Ajay Tirkey.