Adani-Hindenburg Issue : Supreme Court Directs SEBI To Conclude Investigation In 2 Months, Constitutes Expert Committee To Review Regulatory Framework

The Supreme Court on Thursday directed the Securities and Exchange Board of India (SEBI) to complete the investigation of the Adani-Hindenburg issue within a period of two months and file a status report before the Court.

The bench noted the stand of the SEBI is that it is already investigating into the allegations of the Hindenburg report as well as the market activity immediately preceding and post the publication of the report to identify violations.

The bench ordered that as a part of the ongoing investigation, SEBI shall also investigate :

(a) Whether there is a violation of Rule 19A of the Securities Contract Regulation Rules;

(b) Whether there is a failure to disclose transactions with related parties and other relevant information which concerns related parties to the SEBI in accordance with law;

(c) Whether there was any manipulation of stock prices in contravention of existing laws.

"The above directions shall not be construed to limit the contours of the ongoing investigation. SEBI shall expeditiously conclude its investigation within two months and file a status report", the bench ordered.

Court constitutes expert committee :

The Court also constituted an expert committee to review the regulatory mechanism in the light of Adani-Hindenburg issue. A bench comprising CJI DY Chandrachud, Justice PS Narasimha, and Justice JB Pardiwala appointed the following persons as the members of the committee : Mr OP Bhat(former Chairman of SBI), retired Justice JP Devadhar , Mr KV Kamath, Mr Nandan Nilakeni, Mr.Somasekharan Sundaresan as the members of the committee. The Committee will be under the head of former Supreme Court judge Justice AM Sapre.

The committee shall submit its report in a sealed cover before this court within 2 months. The SEBI shall also inform the expert committee the action it has taken in furtherance of the directions as well as the steps taken as part of the ongoing investigation.

The bench noted that the cases concern the loss of investor wealth over the past few weeks due to the steep decline of Adani group companies, precipitated by the Hindenburg Research report which alleged manipulations and malpractices by the Adani group companies. The bench also noted that the Hindenburg had stated that it had taken a short position in the Adani group shares.

It was on 17th February 2023 that the Court had decided to constitute an expert committee to analyse if the regulatory mechanism needed to be strengthened to protect Indian investors from the kind of market volatility which was witnessed following the release of the Hindenburg Research report against Adani Group.

Notably, the bench had refused to accept the names proposed by the Central Government in a sealed cover for inclusion in the proposed committee. "We will select the experts and maintain full transparency. If we take names from the government, it would amount to a government constituted committee. There has to be full (public) confidence in the committee", CJI Chandrachud had orally observed while reserving orders. The CJI had also clarified that the Court will not start with a presumption of failure of regulatory framework in the issue.

The bench reserved the orders on the PILs filed by Advocate Vishal Tiwari, Advocate ML Sharma, Congress leader Jaya Thakur and Anamika Jaiswal. While the petitions filed by Tiwari and Sharma sought investigation against the Hindenburg report for causing losses to Indian investors, the petitions of Thakur and Jaiswal sought investigation against Adani group on the basis of the allegations levelled by Hindenburg. 

On January 24, US-based Hindenburg published its report accusing Adani group of widespread manipulations and malpractices to inflate its stock prices. Adani Group refuted the allegations by publishing a 413-page reply and even went to the extent of terming it as attack against India. Hindenburg shot back with a rejoinder, saying that 'fraud cannot be obfuscated by nationalism' and stood by its report. After the publishing of the Hindenburg report, Adani shares crashed and the embattled group was also forced to recall its FPO.

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

Citation : 2023 LiveLaw (SC) 160

For Petitioner(s) Mr. Vishal Tiwari, In-person Mr. Manohar Lal Sharma, In-person Mr. Prashant Bhushan, Adv. Ms. Neha Rathi, Adv. Mr. Ramesh Kumar Mishra, AOR Mr. Kamal Kishore, Adv. Mr. V.V. Gotam, Adv. Mr. Varun Thakur, Adv. Mr. Varinder Kumar Sharma, AOR

For Respondent(s) Mr. Tushar Mehta, SG Mr. Akhil Abraham Roy, Adv. Ms. Surekha Raman, Adv. Mr. Abhishek Anand, Adv. M/s KJ John & Co. Mr. Tushar Mehta, SG Mr. Kanu Agarwal, Adv. Mr. Rajat Nair, Adv. Mr. Arvind Kumar Sharma, AOR Mr. Ramesh Babu MR, AOR Ms. Manisha Singh, Adv. Ms. Nisha Sharma, Adv. Ms. Tanya Chowdhary, Adv. Mr. Rohan Srivastava, Adv. Applicant-in-person

Adani-Hindenburg Issue - Supreme Court directs SEBI to conclude investigation within 2 months- Constitutes an expert committee to review regulatory mechanism

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