Adani-Hindenburg row: SC orders committee to probe share crash; asks Centre, SEBI to cooperate

NEW DELHI: The Supreme Court on Thursday appointed an expert committee headed by former SC judge Justice AS Sapre to examine the changes required in the regulatory framework in the wake of allegations of stock manipulation against the Adani group. The expert committee shall also consist of other members namely: OP Bhat, Justice JP Deodhar (retired), KV Kamath, Nandan Nilekani and Somashekar Sundareshan. 

A bench of CJI DY Chandrachud, Justices PS Narasimha and JB Pardiwala said that the constitution of the committee was imperative to protect Indian investors from the volatility of the kind that has been witnessed in the recent past and to assess the extent of regulatory framework and thereby make recommendations for strengthening it. The court has directed the committee to submit its report within two months in a sealed cover. 

The remit of the committee shall be as follows: 

A. To provide an overall assessment of the situation including the relevant causal factors that have led to the volatility in the securities market in the recent past 

B. To suggest measures to strengthen investor awareness 

C. To investigate whether there has been a regulatory failure in dealing with the alleged contravention of laws pertaining to the security market in relation to the Adani group and other companies 

D. To suggest measures to strengthen the statutory and regulatory framework and secure compliance with the existing framework for the protection of investors 

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“Chairperson of SEBI is requested to ensure that all requisite information is provided to the committee. All agencies of the Union Govt including agencies connected with financial regulation, fiscal agencies and law enforcement agencies shall cooperate with the committee. The committee is at liberty to seek recourse to external experts,” the court said in its order. 

The Adani Group welcomes the order of the Hon'ble Supreme Court. It will bring finality in a time bound manner. Truth will prevail.

— Gautam Adani (@gautam_adani) March 2, 2023

Noting that SEBI is already looking into the allegations made against the Adani group of companies, the SC, as part of its ongoing investigation, expanded the scope of the committee. It has asked SEBI to also investigate whether there was a violation of Rule 19A of Security Contract Regulation rules, failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI in accordance with law and any manipulation of stock of the prices in contravention of the existing laws. The court also directed SEBI to expeditiously conclude the investigation within two months and file a status report within two months. 

“Further SEBI shall apprise the expert committee on the action it has taken in furtherance of direction of this court as well as the steps that it has taken in furtherance of its ongoing investigation,” the court said in its order. 

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It further said that the constitution of the expert committee will not divest SEBI of its powers and responsibilities in continuing with the investigation into the recent volatility in the securities market. 

The apex court's order came in response to pleas that had sought directions to the Centre and Union Ministry of Home Affairs to constitute a committee headed by a retired SC judge to investigate the contents of the report published by Hindenburg.

The pleas had also sought the issuance of direction to the MHA to register FIR against founder of Hindenburg research and his associates for short selling and directions to recover the profits by the short selling to compensate the investors and also investigate into violation of Rule 19A of the Security Contract Regulation rule. 

SEBI had stated that it was inquiring into the allegations made into the Hindenburg report and the market activity immediately preceding and post the publication of the report to identify violations of SEBI regulations. 

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On February 17, SC while refusing to accept SEBIs "sealed cover" suggestion regarding the composition of the committee had said that it would constitute the same by doing its own research for maintaining the fullest transparency for the protection of investors. 

The bench had remarked that it could not start with the presumption of a "regulatory failure" while it reserved orders with regard to the composition of the expert committee. The bench further said that it would not set up a committee under a sitting SC judge but said that it would instead be headed by a retired SC judge.