BackAdani: SC forms panel to probe allegations
A six-member panel to examine regulatory failures and suggest changes
PremiumNEW DELHI : The Supreme Court on Thursday set up a six-member panel to investigate allegations of regulatory failure and breach of laws against the Adani group and to suggest steps to bolster the statutory and supervisory regime following a bombshell report from US short-seller Hindenburg Research that wiped more than $140 billion in Adani group stocks’ market value.
A bench headed by the chief justice of India, Dhananjaya Y. Chandrachud, said that retired Supreme Court judge A.M. Sapre would head the expert committee, which will inquire into aspects of the controversy surrounding the massive slide in Adani group’s stock prices. The Adani group has denied allegations of stock market manipulation and accounting fraud by Hindenburg.
The Securities and Exchange Board of India has also been ordered by the court to conclude its probe into the matter within two months and submit a report.
“To protect Indian investors against the volatility of the kind which has been witnessed in the recent past, we are of the view that it is appropriate to constitute an expert committee for the assessment of the extant regulatory framework and for making recommendations to that end," the court said, asking the committee to submit its report confidentially within two months.
Acting on a clutch of public interest litigations (PILs), the bench, which also comprised justices P.S. Narasimha and J.B. Pardiwala, directed that the committee will provide an overall assessment of the situation, including the relevant causal factors which have led to the volatility and the securities market in the recent past and will suggest measures to strengthen investor awareness.
“It will investigate whether there has been a regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to Adani Group or other companies. It will also suggest measures to strengthen the statutory and regulatory framework and secure compliance with the existing framework for the protection of investors," said the court.Billionaire Gautam Adani, the founder of the Adani group, was quick to welcome the Supreme Court decision.
“The Adani Group welcomes the order of the Hon’ble Supreme Court. It will bring finality in a time-bound manner. Truth will prevail," he tweeted on Thursday. Meanwhile, the court said in its order that all agencies of the Union government, including agencies connected with financial regulation, fiscal agencies and law enforcement agencies, shall cooperate with the committee. The other members of the committee are O.P. Bhatt (former State Bank of India chairman), justice J.P. Devdhar (former high court judge), K.V. Kamath (veteran banker), Nandan Nilekani (Infosys co-founder) and senior advocate Somasekhar Sundaresan.
The court noted that Sebi, in its note submitted last month, apprised the bench that it is inquiring into both the allegations made in the Hindenburg report as well as the market activity immediately preceding and post the publication of the report to identify violations of relevant regulations.
However, the court directed in its order that Sebi must also investigate the alleged violation of Rule 19A of the Securities Contract Regulation Rules, 1957, which provides that every listed company (other than PSU) shall maintain public shareholding of at least 25% in a public limited company.
The bench took note of the allegations made in one of the petitions before it that the Adani group has been acting in violation of Rule 19A by surreptitiously controlling more than 75% of the shares of publicly traded Adani group companies, thereby manipulating the price of its shares in the market.
Thus, the bench directed that Sebi shall also investigate whether there has been a violation of Rule 19A of the 1957 Rules, if there was a failure to disclose transactions with related parties and other relevant information to Sebi, and whether there was any manipulation of stock prices in contravention of existing laws.
“The above direction shall not be construed to limit the contours of the ongoing investigation. Sebi shall conclude the investigation within two months and file a status report. Further, Sebi shall apprise the expert committee of the action it has taken in the performance of the directions of this court as well as the steps that it has taken in furtherance of its ongoing investigation," added the bench.
It clarified that the constitution of the expert committee does not divest Sebi of its powers or responsibilities, and it should continue investigating the recent volatility in the security market. “As a regulatory adjudicatory and prosecuting agency, Sebi has vital functions to discharge in the context of maintaining an orderly and stable securities market so as to protect the interests of investors," the court said.
Hindenburg’s report, released on 24 January, 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, with the flagship firm losing over $140 billion in days and forcing the cancellation of a ₹20,000 crore secondary share sale after it had scraped through.
On Thursday, the bench delivered its order on a batch of four petitions, demanding a probe into the Hindenburg report contents, lapses of statutory authorities in protecting investors, and allegations against Adani Group.
While one of the petitioners, advocate Vishal Tiwari, asked for a probe against the Hindenburg report to ascertain if a calculated attempt was made to tarnish the country’s image and impact its economy, another petitioner, advocate M.L. Sharma, questioned Sebi’s failure to suspend trading of Adani Group shares soon after the report came out. Sharma’s petition named Hindenburg founder Nathan Anderson and his associates as short-sellers and accused them of hatching a “criminal conspiracy" by releasing a “concocted news" as a research report to cause heavy losses to the shareholders of Adani stocks. The two other petitions, including the one filed by Congress leader Jaya Thakur, demanded a probe against the alleged violation of regulations by the Adani Group.
The court had on 17 February reserved its order on the composition and remit of the committee. On that day, the bench turned down the Centre’s “sealed cover" nominees for a probe committee, asserting the court will instead name its panel. The bench noted that the process must inspire transparency and confidence without an impression being given of the committee being a “government-appointed" panel.
The Centre’s note, submitted in the court through solicitor general Tushar Mehta, had suggested that the proposed panel should be entrusted with the primary task of ascertaining the truthfulness of allegations against the Adani Group of companies in the Hindenburg report.
The probe, this note added, should also focus on Hindenburg’s admitted position of acquiring a “short position" in the Adani group and gather details of all its transactions undertaken by it and its linked companies, besides exploring ways to strengthen the statutory and regulatory framework in India. The note also submitted a few names for the proposed panel in a sealed cover envelope.
On 10 February, the bench suggested that the Centre put in place a “robust framework" by amending laws and strengthening supervisory control to protect thousands of investors impacted by the Hindenburg report.
Later, the government and Sebi agreed to the Supreme Court’s suggestion of setting up an expert committee to strengthen its supervisory regime, even as it expressed confidence in the current framework and “full resilience" of Indian stock markets. Sebi had then told the top court that an inquiry into the Hindenburg report and related market activities was underway.
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