New Delhi: The Supreme Court Wednesday asked markets regulator SEBI to complete its probe into allegations against the Adani Group by Hindenburg Research, a US-based short-seller, in the next three months. The apex court said that there is no ground to transfer the case to the CBI.
A three-judge bench led by Chief Justice of India D Y Chandrachud and comprising justices J B Pardiwala and Manoj Misra said: “SEBI has completed twenty-two out of the twenty-four investigations into the allegations levelled against the Adani group. Noting the assurance given by the Solicitor General (Tushar Mehta) on behalf of SEBI, we direct SEBI to complete the two pending investigations expeditiously preferably within three months”.
The bench said SEBI’s status report and the details of the twenty-four investigations does not indicate inaction by SEBI. “In fact, to the contrary, the course of conduct by SEBI inspires confidence that SEBI is conducting a comprehensive investigation”, said the bench.
The CJI, who authored the judgment on behalf of the bench, said SEBI and the central investigative agencies should probe into whether the loss suffered by Indian investors due to the conduct of Hindenburg Research and any other entities in taking short positions involved any infraction of the law and if so, suitable action shall be taken.
The CJI said no apparent regulatory failure can be attributed to SEBI based on the material before the court and there is prima facie no deliberate inaction or inadequacy in the investigation by SEBI.
The bench held that there is no valid ground raised to direct the SEBI to revoke its amendments on Foreign Portfolio Investment (FPI) and Listing Obligations and Disclosure Requirements (LODR) regulations. A report by Organised Crime and Corruption Reporting Project (OCCRP) in August had alleged that business partners of the Adani family made large investments in its shares through 'opaque' Mauritius funds. “The reliance placed by the petitioner on the OCCPR report to suggest that SEBI was lackadaisical in conducting the investigation is rejected. A report by a third-party organization without any attempt to verify the authenticity of its allegations cannot be regarded as conclusive proof”, said the CJI.
The CJI said such reports by “independent” groups or investigative pieces by newspapers may act as inputs before SEBI or the expert committee and they cannot be relied on as conclusive proof of the inadequacy of the investigation by SEBI. “Nor, as the petitioners state, can such inputs be regarded as credible evidence. The veracity of the inputs and their sources must be demonstrated to be unimpeachable”, said the bench.
Advocate Prashant Bhushan, representing a petitioner, had made submissions regarding a letter by DRI and on conflict of interest of members of court-appointed panel. “The petitioner’s reliance on the letter by the DRI is misconceived as the issue has already been settled by concurrent findings of DRI’s Additional Director General, the CESTAT and this court. The allegations of conflict of interest against members of the Expert Committee are unsubstantiated and are rejected”, said the bench.
The apex court made it clear that facts of this case do not warrant a transfer of investigation from SEBI and added that in an appropriate case, it has the power to transfer an investigation being carried out by the authorized agency to an SIT or CBI. “Such a power is exercised in extraordinary circumstances when the competent authority portrays a glaring, wilful and deliberate inaction in carrying out the investigation. The threshold for the transfer of investigation has not been demonstrated to exist”, said the CJI, in the 46-page judgment.
The apex court said it finds no merit in the argument that the FPI Regulations, 2014 have been diluted to facilitate mischief. “The amendments, far from diluting, have tightened the regulatory framework by making the disclosure requirements mandatory and removing the requirement of it being disclosed only when sought. The disclosure requirement therefore is now at par with PMLA”, said the bench.
The apex court said that its power to enter the regulatory domain of SEBI in framing delegated legislation is limited and it must refrain from substituting its own wisdom over the regulatory policies of SEBI. “The scope of judicial review when examining a policy framed by a specialized regulator is to scrutinise whether it violates fundamental rights, any provision of the Constitution, any statutory provision or is manifestly arbitrary”, said the bench.
The petitioners had vehemently argued for transfer of investigation from SEBI to a court-appointed SIT. “This Court does have the power under Article 32 and Article 142 of the Constitution to transfer an investigation from the authorized agency to the CBI or constitute an SIT. However, such powers must be exercised sparingly and in extraordinary circumstances……. Such powers must not be exercised by the court in the absence of cogent justification indicative of a likely failure of justice in the absence of the exercise of the power to transfer. The petitioner must place on record strong evidence indicating that the investigating agency has portrayed inadequacy in the investigation or prima facie appears to be biased”, said the apex court.
The bench noted that stocks of the Adani group witnessed volatility in the aftermath of the publication of the Hindenburg Report. “This volatility was examined by the Expert Committee, which after examining the facts presented by SEBI and engaging with market participants, opined that the impact of the Adani group-related events on the overall market was low”, it said.
The bench said the Union Government and SEBI shall constructively consider the suggestions of the expert committee. “These may be treated as a non-exhaustive list of recommendations and the Government of India and SEBI will peruse the report of the Expert Committee and take any further actions as are necessary to strengthen the regulatory framework, protect investors and ensure the orderly functioning of the securities market”, said the bench.
On the aspect of public interest jurisprudence under Article 32 of the Constitution, the bench said “petitions that lack adequate research and rely on unverified and unrelated material tend to, in fact, be counterproductive. This word of caution must be kept in mind by lawyers and members of civil society alike”.
The apex court had constituted the expert committee in March 2023, on a batch of PILs filed by advocate Vishal Tiwari and others, to investigate the allegations made against the Adani Group in the Hindenburg Report and whether there was a regulatory failure in the same. The apex court had nominated all the members and the committee is headed by retired apex court judge, Justice Abhay Manohar Sapre.
The committee, in its report submitted in May, said the allegations of stock price manipulation or violation of MPS norms by Adani Group companies cannot be proved at this stage.
Hindenburg's report, published in January 2023, claimed "brazen accounting fraud" and "stock manipulation" by the Gautam Adani-led group. Though the conglomerate rejected the report as "unresearched" and "maliciously mischievous", it triggered a massive rout of Adani group stocks.
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