Hindenburg Adani report fallout: SC grants SEBI three months to complete its investigation against Adani

The Supreme Court held that there is no ground to transfer the investigation carried out by the market regulator Securities and Exchange Board of India (SEBI) on the alleged violations of market regulatory norms against Adani Group and directed the SEBI to complete its investigation within three months. 

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TODAY, the Supreme Court denied constituting a special investigation team (SIT) to investigate the allegations of violation of market regulatory norms by the multinational corporate Adani Group.

On January 24 last year, the investment research firm Hindenburg Research LLC had released a report that alleged the conglomerate engaged in "brazen stock manipulation and accounting fraud scheme over the course of decades".

Following the publication of the report, there was a depreciation in the stock prices of the Adani Group.

A three-judge Bench led by Chief Justice of India (CJI) Dr D.Y. Chandrachud and also comprising Justices P.S. Narasimha and J.B. Pardiwal heard a batch of petitions seeking a court-monitored investigation into the allegations against Adani.

On March 2, 2023, the Supreme Court ordered two parallel inquiries on separate but interrelated remits. It constituted an 'expert committee' to investigate whether there had been a regulatory failure in dealing with the allegations levelled by Hindenburg.

The committee was headed by the retired Supreme Court judge Justice Abhay Manohar Sapre and also comprised former State Bank of India chairperson, Om Prakash Bhatt; retired Bombay High Court judge, Justice J.P. Devadhar; National Bank of Financing Infrastructure and Development chairperson, K.V. Kamath; entrepreneur Nandan Nilekani; and advocate Somasekhar Sundaresan who was subsequently elevated to Bombay High Court judgeship).

Later, the market regulator Securities and Exchange Board of India (SEBI) informed the court that it was "already enquiring 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 SEBI regulations."

However, since the SEBI investigation was at a preliminary stage, it informed the court: "It may not be appropriate to list details about the ongoing proceedings."

Based on SEBI's submissions, the court directed the market regulator to also investigate other issues including any manipulation of stock prices in contravention of existing laws.

The two other issues that the court ordered the SEBI to investigate were whether there had been a violation of Rule 19A of the Securities Contracts (Regulation Rules) 1957 and whether there had been a failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI, accordance with the law.

While the expert committee submitted its report on May 6 in a sealed cover as directed by the court, the SEBI requested an extension citing the complexity of the transactions involved. The expert committee concluded that there was no 'no regulatory failure' on the part of SEBI.

As of now, the SEBI's investigation is still not complete.

Today, the Supreme Court stated that the SEBI has completed its investigation into twenty-two out of the twenty-four allegations levelled against Adani. It stated that the court's power to interfere with the mandate of the SEBI is limited and thus directed the market regulator to complete its investigation within three months.