Supreme Court Refuses SIT/CBI Probe In Adani-Hindenburg Case; Endorses SEBI Investigation, Regulations
The Supreme Court on Wednesday (January 3) refused to order a probe by a Special Investigation Team (SIT) or the Central Bureau of Investigation(CBI) into the allegations levelled in the Hindenburg Research report regarding stock price manipulations by the Adani group of companies.A three-Judge bench comprising Chief Justice of India DY Chandrachud, Justices JB Pardiwala and Manoj Misra...
The Supreme Court on Wednesday (January 3) refused to order a probe by a Special Investigation Team (SIT) or the Central Bureau of Investigation(CBI) into the allegations levelled in the Hindenburg Research report regarding stock price manipulations by the Adani group of companies.
A three-Judge bench comprising Chief Justice of India DY Chandrachud, Justices JB Pardiwala and Manoj Misra held that there was no ground to doubt the investigation being carried out by the Securities and Exchange Board of India (SEBI). The Court also held that there were no valid grounds raised to direct the SEBI to revoke its amendments on FPI and LODR regulations. The Court held that these regulations do not suffer from any infirmities. "The FPI Regulations and LODR Regulations have been tightened by the amendments in question," CJI pronounced.
The Court also noted that the SEBI has completed its investigation in 22 out of 24 cases. Taking into account the assurance of the Solicitor General, the Court directed the SEBI to complete the investigation in the remaining 2 cases within a period of three months.
The Court refused to accept the reliance placed by the petitioners on newspaper reports and the report of the Organized Crime and Corruption Reporting Project (OCCRP) to doubt the SEBI probe.
The reliance on unsubstantiated news reports and third-party organisations cannot be accepted to doubt the probe by a statutory regulator, the Court said. "Such reports by independent groups or investigative people by newspapers may act as inputs before the SEBI or the Expert Committee. However, they cannot be relied upon as conclusive proof of the inadequacy of the investigation by SEBI," CJI read out from the judgment.
The Court rejected the arguments of petitioners regarding conflict of interest on the part of the members of the Expert Committee. However, it was added that the Govt of India and SEBI shall take into consideration the recommendations of the Expert Committee to strengthen the regulatory framework to protect the interests of the Indian investors.
"The SEBI, and the investigative agencies of the Union government, shall probe into whether the loss suffered by Indian investors due to the conduct of the Hindenburg research and any other entities in taking short position involved any infraction of law, and if so, suitable action shall be taken," the Court further directed.
On a parting note, the Court issued a word of caution against lawyers filing Public Interest Litigations without adequate research and by relying on unverified reports.
A three-Judge bench comprising Chief Justice of India DY Chandrachud, Justices JB Pardiwala and Manoj Misra had reserved the judgment on November 24 last year on the PILs, which sought a court-monitored probe into the allegations levelled in the Hindenburg Research report regarding stock price manipulations by the Adani group of companies. During the hearing of the matter, the Bench had orally remarked that there was no material to doubt the investigation carried out by the Securities and Exchange Board of India ("SEBI"). The Bench had also expressed reluctance to accept the arguments against the impartiality of the members of the expert committee constituted by the court to examine the issue.
Background
On January 24, 2023, US-based short-selling firm Hindenburg Research published a scathing report accusing the Adani Group of widespread manipulations and malpractices aimed at inflating its stock prices. In response, the Adani Group vehemently refuted the allegations by publishing a comprehensive 413-page reply.
Subsequently, a group of Public Interest Litigations (PILs) was filed in the Supreme Court by Advocates Vishal Tiwari, ML Sharma, Congress leader Dr. Jaya Thakur, and activist Anamika Jaiswal. These PILs sought a court-monitored probe into the matter. On March 2, the Supreme Court constituted a committee to investigate and examine if there was any regulatory failure in the matter. The SEBI was also directed to probe into the allegations against the Adani group. The expert committee was composed of Mr OP Bhat (former Chairman of SBI), retired Justice JP Devadhar, Mr KV Kamath, Mr Nandan Nilekani, and Mr Somasekharan Sundaresan, with former Supreme Court judge Justice AM Sapre heading the committee.
The two months' time originally allowed by the apex court for SEBI as per its March 2 order ended on May 2.
However, in May, the SEBI filed an application in the Supreme Court, requesting a six-month extension to complete its probe. In its affidavit, SEBI had stated that the transactions in the matter were complex and required more time to examine. SEBI also informed the apex court bench that it had already approached eleven overseas regulators under the Multilateral Memorandum of Understanding (MMOU) with the International Organisation of Securities Commissions (IOSCO) with respect to its investigation into Minimum Public Shareholding (MPS) norms the investigation required more time.
The Supreme Court initially refused to grant a full six-month extension but extended the deadline to August 14, 2023. The bench had passed the extension order on May 17. As the second deadline was set to end, SEBI requested an additional 15 days to complete its investigation. In its application, SEBI informed the court that "it has progressed substantially". The market regulator further said that in one matter, an interim report had been prepared based on the materials available and that it had sought information from agencies and regulators in foreign jurisdictions, etc. and upon receipt of such information, it would evaluate the same to determine further course of action, if any.
Other reports about the judgment can be read here.
Case Title : Vishal Tiwari v. Union of India W.P.(C) No. 162/2023 and connected cases.
Citation : 2024 LiveLaw (SC) 2