SC Declines to Transfer Adani-Hindenburg Probe From SEBI to SIT and to Revoke SEBI’s Amendments to FPI & LODR Norms

Case Details: [2024] 158 taxmann.com 85 (SC)[03-01-2024]

Judiciary and Counsel Details

• • Dr Dhananjaya Y. Chandrachud, CJI., J.B. Pardiwala & Manoj Misra, JJ.

Facts of the Case

In the instant case, the Supreme Court declined to initiate an investigation through a Special Investigation Team (SIT) or the Central Bureau of Investigation (CBI) into the accusations outlined in the Hindenburg Research report concerning stock price manipulations attributed to the Adani group of companies.

Supreme Court Held

The SC outlined that the facts of this case do not warrant a transfer of investigation from SEBI. In an appropriate case, the Supreme Court does have the power to transfer an investigation being carried out by the authorized agency to an SIT or CBI. Such a power is exercised in extraordinary circumstances when the competent authority portrays a glaring, willful and deliberate inaction in carrying out the investigation. The threshold for the transfer of investigation has not been demonstrated to exist.

Further, the Supreme Court also held that no valid grounds have been raised to direct the SEBI to revoke its amendments to the FPI Regulations and the LODR Regulations which were made in the exercise of its delegated legislative power. The procedure followed in arriving at the current shape of the regulations does not suffer from irregularity or illegality. The FPI Regulations and LODR Regulations have been tightened by the amendments in question.

SEBI has completed 22 out of the 24 investigations into the allegations levelled against the Adani group. SC directed the SEBI to complete the two pending investigations expeditiously preferably within 3 months.

The Court directed the Union Government and SEBI to constructively consider the suggestions of the Expert Committee in its report detailed in Part F of the judgment. The Court said that these may be treated as a non-exhaustive list of recommendations and the Government of India and SEBI will peruse the report of the Expert Committee and take any further actions as necessary to strengthen the regulatory framework, protect investors and ensure the orderly functioning of the securities market; and

The Apex Court further directed the SEBI and the investigative agencies of the Union Government to probe into whether the loss suffered by Indian investors due to the conduct of Hindenburg Research and any other entities in taking short positions involved any infraction of the law and if so, suitable action shall be taken.

Background of the Case

Earlier, a report was published on 24 January 2023 by an “activist short seller”, Hindenburg Research about the financial transactions of the Adani group. The report inter alia alleged that the Adani group manipulated its share prices and failed to disclose transactions with related parties and other relevant information in violation of the regulations framed by the SEBI and provisions of securities.

Following this, a set of Public Interest Litigations (PILs) was filed in the Supreme Court Vishal Tiwari v. Union of India – [2023] 148 taxmann.com 48 (SC) These PILs sought a Court-monitored investigation into the matter. On March 2, the Supreme Court established a committee to examine whether there was any regulatory failure in the case. The Securities and Exchange Board of India (SEBI) was also directed to investigate the accusations against the Adani Group.

The initial two-month period granted by the Supreme Court for the SEBI to conclude its investigation, as per the March 2, 2023 order, ended on May 2, 2023.

However, in May, the SEBI applied to the Supreme Court, requesting a six-month extension to complete its probe. In the affidavit, the SEBI explained that the transactions in question were intricate and necessitated more time for examination. The SEBI also disclosed that it had approached eleven overseas regulators under the Multilateral Memorandum of Understanding (MMOU) with the International Organisation of Securities Commissions (IOSCO) concerning its investigation into Minimum Public Shareholding (MPS) norms, and this outreach required additional time.

The Supreme Court extended the deadline to August 14, 2023. As the second deadline approached, the SEBI requested an additional 15 days to complete its investigation, asserting significant progress and the preparation of an interim report based on available materials. The SEBI informed the court that it had sought information from agencies and regulators in foreign jurisdictions and would evaluate this information to determine any further course of action.