Adani-Hindenburg | Formation Of Expert Committee Does Not Divest SEBI Of Its Responsibilities In Continuing Investigation : Supreme Court

The Supreme Court of India, in its judgement constituting an expert committee to review the regulatory mechanism in the light of Adani-Hindenburg issue, provided details regarding a note SEBI had submitted before the bench to set out the existing statutory regime for investors in India. The court remarked that the constitution of the expert committee did not divest SEBI of its powers or responsibilities in continuing with its investigation into the volatility in the securities market in India. A bench comprising CJI DY Chandrachud, Justice PS Narasimha, and Justice JB Pardiwala passed the judgement in the petitions filed in the wake of the Adani group shares taking a beating in the stock market following the publication of a report by US-based short-selling firm Hindenburg Research. 

In order to elaborate upon the existing statutory regime, regulatory mechanisms, and frameworks in place for the protection of investors, as well as the regulatory framework governing short selling in India SEBI had placed a note on record before the bench. 

The following submissions were made by SEBI in its note–

1. SEBI had adopted a disclosure based regulatory regime for both issuance of and trading in securities. This is in line with the discontinuation of pricing control for capital issues in favour of the principle of free discovery by the markets based on demand and supply from informed investors; and

2. SEBI is “strongly and adequately empowered to put in place regulatory frameworks for effecting stable operations and development of the securities markets including protection of investors.” 

3. SEBI had an extant framework governing investor protection in the context of the subject matter at hand.

4. As per SEBI, the key pillars of investor protection include mandatory disclosures by listed companies to facilitate free and fair price discovery, market systems to ensure seamless trading and settlement including volatility management, and enforcement action in the event of misconduct in the market including fraud or violations of SEBI regulations.

The bench noted that–

"It appears that SEBI is seized of the investigation into the allegations made against the Adani Group companies. SEBI 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."

Other allegations which the bench asked SEBI to investigate into can be found here. 

The bench directed SEBI to expeditiously conclude the investigation within two months and file a status report and added–

"The constitution of the expert committee does not divest SEBI of its powers or responsibilities in continuing with its investigation into the recent volatility in the securities market."

What is the remit of the Committee formed by the Court? 

The Court constituted an expert committee to review the regulatory mechanism in the light of Adani-Hindenburg issue. The remit of the Committee is as follows–

1. 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;

2. To suggest measures to strengthen investor awareness;

3, To investigate whether there has been regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group or other companies; and

4. To suggest measures to (strengthen the statutory and/or regulatory framework; and secure compliance with the existing framework for the protection of investors.

The Committee has been requested to furnish its report in sealed cover to the Supreme Court within two months.

Case Title: Vishal Tiwari vs Union of India W.P.(C) No. 162/2023, Manohar Lal Sharma vs Union of India W.P.(Crl.) No. 39/2023, Anamika Jaiswal vs Union of India W.P.(C) No. 201/2023, Dr.Jaya Thakur vs Union of India W.P.(Crl.) No. 57/2023

Click Here To Read Judgement