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SC dismisses doubts on investigation by SEBI and impartiality of expert committee in Adani matter

A three-judge Bench led by the Chief Justice of India Dr D.Y. Chandrachud and also comprising Justices J.B. Pardiwala and Manoj Misra was hearing a batch of petitions seeking a probe into allegations of manipulating stocks and violating stock market regulations by Adani Group.

ON Friday, the Supreme Court concluded hearing parties in respect of the investigation by the Securities and Exchange Board of India (SEBI) and the report of the court-appointed expert committee on allegations against Adani Group.

A three-judge Bench led by the Chief Justice of India Dr D.Y. Chandrachud and also comprising Justices J.B. Pardiwala and Manoj Misra was hearing a batch of petitions seeking a probe into allegations of manipulating stocks and violating stock market regulations by Adani Group.

The petitions are pursuant to the report released by the investment research firm Hindenburg Research on the Adani Group on January 24 this year, which alleged that the demand for Adani’s shares was artificially inflated, creating a surge in its prices.

A contempt petition was filed against the SEBI for its failure to complete its investigation within the timeframe stipulated by the Supreme Court.

Reportedly, the court had also directed the SEBI to conduct an investigation into the claims of stock manipulation by the Adani Group and whether there was a violation of Rule 19A of the Securities Contracts (Regulation) Rules, 1957.

The SEBI was directed to submit its findings by August 14.

In March this year, the Supreme Court formed a five-member expert committee headed by a retired Supreme Court judge to review existing market regulatory mechanisms in order to protect the interests of investors.

Subsequently, in May, the expert committee submitted its interim report that found no evidence of stock manipulation or any regulatory failure.

Today, the Solicitor General of India Tushar Mehta, appearing on behalf of the SEBI, stated that of the 24 cases identified for investigation by the SEBI, investigation into 22 cases has been completed.

Mehta submitted that for the remaining two cases, the SEBI is in the process of acquiring information from the concerned foreign regulators.

The CJI raised the concerns of “extreme volatility in the stock market” and “loss of investor value”. The CJI questioned Mehta on the steps the SEBI intends to take to protect the interest of investors and whether the SEBI has found any wrongdoing in terms of short selling.

Short selling is when a trader borrows shares and sells them, hoping the price will fall after so they can buy them back for cheaper.

To this, Mehta apprised the court that the SEBI has accepted suggestions given by the expert committee on improving the regulatory framework.

Mehta referred to a report by the international media organisation, Organised Crime and Corruption Reporting Project (OCCRP), which formed a part of the petitions.

The OCCRP first published the article in August this year. The article was subsequently carried out by the Financial Times and The Guardian. The article details the source of funds used to purchase shares in the Adani conglomerate of companies.

Mehta termed OCCRP’s report as a “self-serving report” and opposed delving into it. Mehta submitted that the OCCRP could not share details of the report when requested.

There is a growing tendency of stories being planted outside India that influences policies within India,” Mehta warned.

On the contempt petition, filed by one Vishal Tiwari, Mehta averred that the SEBI stood in non-compliance with the deadline for ten days. He contended that following the investigations, the SEBI will initiate quasi-judicial steps.

Senior advocate Prashant Bhushan, appearing for petitioner Anamika Jaiswal, argued that two out of the six members of the expert committee had a conflict of interest. Bhushan urged the court to appoint a fresh expert committee.

In particular, Bhushan claimed that one of the members, O.P. Bhatt, is a Chairman of Greenko, a renewable energy company that is working in a close partnership with the Adani Group.

In addition, Bhushan alleged that Somasekhar Sundaresan, another member of the expert committee, represented the Adani Group as a lawyer in 2006 and on several occasions. 

The CJI strongly refused to entertain the doubts raised against the committee members, particularly against Sundaresan. “People will stop being in committees we appoint,” the CJI remarked. 

Incidentally, Sundaresan was appointed as an additional judge of the Bombay High Court yesterday after a two-year wait during which he lost seven seniority steps.

The Union government sat over his appointment for long because, as per them, he was a “highly biased and opinionated person” who was “selectively critical on social media of important policies, initiatives and directions of the government”.

Bhushan highlighted the reports by Hindenburg and the OCCRP as well as investigative articles published by the Financial Times and The Guardian, which the SEBI has failed to consider, he claimed.

Dismissing this contention, the CJI remarked that articles in newspapers cannot be considered as the “gospel truth” without evidence.

In reply, Bhushan stated that the voluminous Hindenburg report contains evidence, and articles in the newspapers contain further material on the allegations.

Bhushan said, “If the journalists can get hold of the relevant documents, how is it that the SEBI, with all its powers under its command, is not able to?”

Bhushan argued that the Adani Group violated the SEBI regulations that mandate that a minimum of 25 percent of shares of a public listed company should be held by the public to stay listed.

Due to the violation of the regulations, Adani Group is liable to be delisted,” Bhushan submitted.