Hindenburg Adani report fallout: Supreme Court grants SEBI time till August to complete its probe

After first receiving a three-month extension, SEBI has now been granted three more months to complete its probe. Meanwhile, the 'expert committee' formed by the Supreme Court in March has submitted its report within the stipulated time.

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THE Supreme Court on Wednesday granted market regulator Securities and Exchange Board of India (SEBI) time till August 14 to submit a status report into the allegations made by investment-research firm Hindenburg Research LLC on the business practices of multinational corporate Adani Group and other issues related to market regulation.

The Bench, comprising Chief Justice of India (CJI) Dr D.Y. Chandrachud and Justices P.S. Narasimha and J.B. Pardiwala, also ordered that the report submitted by the 'expert committee' led by the retired Supreme Court judge Justice Abhay Manohar Sapre be shared with the petitioners in the case. The report was placed before the court in a sealed cover, as directed by the court.

Through an order dated March 2, both SEBI and the expert committee had been granted two months to conclude investigations and submit a report. A three-month extension was granted to SEBI on April 29 by the Supreme Court to conclude its investigation.

Appearing for SEBI, Solicitor General of India Tushar Mehta pleaded for an extra month to comply, but the Bench refused to grant the extension. "We granted two months and now extended it till August which makes it five months. If you have any genuine issue, tell us," the CJI told Mehta.

On Monday, the market regulator had told the court that any premature conclusion of investigation would not serve the ends of justice "and hence would be legally untenable", adding that eleven overseas regulators had been approached by it for information on Adani Group's possible violations of market regulatory norms.

On Wednesday, senior advocate Prashant Bhushan told the court that the Adani Group had been under SEBI's scanner even before 2016 and the conclusions, if any, of these investigations must be placed on the record. "There is clearly an attempt to shield Adani," he alleged.

Mehta opposed the sharing of all records available with the SEBI on the Adani Group, arguing that previous investigations into the group were not the remit of the current petition. However, Mehta softened his stand later and stated that if the court wants those records placed and orders so, "then I have no objection".

Two panels

In a report released on January 24, Hindenburg Research group had charged the Adani Group conglomerate with engaging in "brazen stock manipulation and accounting fraud scheme over the course of decades". The group had also highlighted that key listed Adani companies have taken on substantial debt, and charged the conglomerate with operating shadowy shell entities in places with loose financial regulations.

In its aftermath, the Supreme Court had directed the constitution of an expert committee through an Order issued on March 2. This committee was headed by the retired Supreme Court judge Justice Abhay Manohar Sapre, and 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.

While reserving its order in the matter on February 17, the Supreme Court had refused to accept the sealed-cover suggestions made by the Union government on the panel of experts, observing that it wished to avoid the impression that "it is a government-appointed committee".

The remit of the committee was as follows:

• 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
• To suggest measures to strengthen investor awareness
• 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
• To suggest measures to (i) strengthen the statutory and/or regulatory framework; and (ii) secure compliance with the existing framework for the protection of investors

During the course of the hearing of another case (Prakash Gupta versus SEBI), the market regulator had 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… As the matter is in [the] early stages of examination, it may not be appropriate to list details about the ongoing proceedings at this stage."

Based on the above submission, the Supreme Court had observed that "there may be various other allegations that SEBI must include in its investigation". The court had directed SEBI to "also" investigate the following: 

• Whether there has been a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957
• Whether there has been a failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI, in accordance with law
• Whether there was any manipulation of stock prices in contravention of existing laws

The Bench had clarified that the above directions shall not be construed to limit the contours of the ongoing investigation and directed SEBI to "expeditiously conclude the investigation within two months and file a status report".

On Wednesday, the Supreme Court was in the process of hearing four public interest litigation petitions; one each by advocates Vishal Tiwari, Anamika Jaiswal and M.L. Sharma, and Indian National Congress leader Dr Jaya Thakur. 

The court will next hear this matter after court vacations.

Case title: Vishal Tiwari And Ors versus Union of India And Ors (Writ Petition (Civil) No. 162 of 2023)