Hindenburg Adani report fallout: Supreme Court forms committee to review regulatory framework

In order to protect Indian investors against volatility of the kind which has been witnessed in the recent past, the court-constituted Expert Committee will assess the existing regulatory framework and make recommendations to strengthen it. Gautam Adani has welcomed the move.

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THE Supreme Court on Thursday formed a five-member expert committee headed by a retired Supreme Court judge to review existing market regulatory mechanisms and protect the interests of investors following the explosive allegations made by investment-research firm Hindenburg Research LLC on the business practices of multinational corporate Adani Group.

The committee will be headed by retired Supreme Court judge Justice Abhay Manohar Sapre, and comprise 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. The committee has been requested to furnish its report to the court within two months in a sealed cover.

The panel has been constituted "in order to protect Indian investors against volatility of the kind which has been witnessed in the recent past," the order dated March 2 notes. "[W]e 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 strengthen it." A part of its mandate would be to investigate possible regulatory failure in dealing with the Adani Group.

While hearing the matter on Thursday, the three-judge bench, consisting the Chief Justice of India Dr. D.Y. Chandrachud, and Justices P.S. Narasimha and J.B. Pardiwala also asked the chairperson of the securities and commodity market regulator, the Securities And Exchange Board of India to ensure that all requisite information is provided to the committee. Additionally, it clarified that the committee shall be at liberty to seek recourse of external experts for its work.

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".

To ensure the efficient functioning of the committee, the court also directed all agencies of the Union government, including agencies connected with financial regulation, fiscal agencies and law enforcement agencies to cooperate with the committee.

Shortly after the bench passed the order, Adani Group chairperson and founder, billionaire industrialist Gautam Adani tweeted: "The Adani Group welcomes the order of the Hon'ble Supreme Court. It will bring finality in a time-bound manner. Truth will prevail."

The remit of the committee shall be 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

The constitution of the above committee has its origin in the research published in January by Hindenburg, which charged the Adani Group conglomerate with engaging in "brazen stock manipulation and accounting fraud scheme over the course of decades". The group 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.

On Thursday, the Supreme Court was in the process of hearing four public interest litigation petitions; one each by advocates Vishal Tiwari and M.L. Sharma, Indian National Congress leader Jaya Thakur and one Mukesh Kumar, who claims to be a social activist.

The petitions will be next heard after two months.

Click here to view the Supreme Court's full order.