The Supreme Court on Wednesday refused to form any special investigation team (SIT) or group of experts to conduct an investigation into the Adani-Hindenburg controversy, saying that media and third party reports were not conclusive proof. Noting that Securities and Exchange Board of India (SEBI) has completed the investigation in 20 out of 22 matters, the SC says, "Taking into account the assurance of the solicitor general, we direct SEBI to complete the investigation in the other two cases within three months.
“Reliance on newspaper reports and third-party organisations to question the statutory regulator does not inspire confidence. They can be treated as inputs but not conclusive evidence to doubt the SEBI probe. This Court has not interfered with the outcome of the investigations by SEBI, which should take its investigation to its logical conclusion in accordance with the law. The facts of this case do not warrant a transfer of investigation from SEBI,” held a bench presided over by chief justice Dr DY Chandrachud.
Taking note of the submission made by solicitor general Tushar Mehta that 22 out of 24 investigations relating to allegations against the Adani group of companies have already been finalised, the bench, also comprising justice JB Pardiwala and justice Manoj Misra, asked the market regulator to complete the pending two investigations 'expeditiously within three months'.
The bench says, "The power of this court to enter the regulatory framework of SEBI is limited. No valid grounds were raised to direct SEBI to revoke its amendments on foreign portfolio investors (FPIs) and listing obligations and disclosure requirements (LODR) regulations. The regulations do not suffer from any infirmities."
The apex court said that reports prepared by third-party organisations such as the Organised Crime and Corruption Reporting Project (OCCRP) and Hindenburg Research cannot be regarded as 'conclusive proof'.
"The reliance placed by the petitioner on the OCCPR report to suggest that SEBI was lackadaisical in conducting the investigation is rejected. A report by a third-party organisation without any attempt to verify the authenticity of its allegations cannot be regarded as conclusive proof. Further, the petitioner’s reliance on the letter by the department of revenue intelligence (DRI) is misconceived as the issue has already been settled by concurrent findings of DRI’s additional director general, the CESTAT and this Court," the bench says.
In August 2023, OCCRP, in an article, says that crores of rupees were invested in listed stocks of India's Adani group via 'opaque' funds from Mauritius that 'obscured' the involvement of alleged business partners of the Adani family. OCCRP also reported that two men, Nasser Ali Shaban Ahli (Nasser) of the United Arab Emirates (UAE) and Chang Chung-Ling (Chung-Ling) (Chinese/Taiwan), who are treated as public investors in stock exchange filings, are actually Adani insiders, which is a violation of Indian laws. This also reduced the free float of the stock, helping to manipulate the prices with less funds. (
Read: Adani Family Secretly Invested in Own Shares, Through 'Opaque' Funds, Alleges Non-profit International Investigative Media Group OCCRP)
During the hearing, SEBI argued that the difficulty it faces in obtaining information regarding holders of economic interest in FPIs does not change regardless of the amendments in the FPI Regulations.
"..a challenge arises due to differing regulations in jurisdictions where entities with an economic interest in an FPI operate. The ambiguity lies in beneficial ownership identification, which is based on control or ownership in some jurisdictions, potentially overlooking entities with economic interest but no apparent control. Consequently, investment managers or trustees, utilising arrangements like voting shares, may be recognised as beneficial owners, leading to a potential failure in identifying the actual investing entities with an economic interest, especially when holdings are distributed across multiple FPIs," the market regulator contended.
The apex court says it finds merit in SEBI's argument. It says, "The petitioners have not challenged the vires of the Regulations but have contended that there is a regulatory failure based on SEBI’s alleged inability to investigate, which is attributed to changes in the regulations. Such a ground is unknown to this Court’s jurisprudence. In effect, this Court is being asked to replace the powers given to SEBI by Parliament as a delegate of the legislature with the petitioners’ better judgment. The critique of the regulations made as an afterthought and based on a value judgment of economic policy is impermissible. Additionally, we find no merit in the argument that the FPI Regulations have been diluted to facilitate mischief."
The SC also rejected arguments from petitioners regarding conflict of interest on the part of the members of the expert committee. It says, “The allegations of conflict of interest against members of the (court-appointed) expert committee are unsubstantiated and are rejected.”
The Supreme Court asked the Union government to constructively consider the suggestions made by the expert panel headed by former apex court judge justice AM Sapre.
“The government of India and SEBI will take any further actions as are necessary to strengthen the regulatory framework to protect investors and ensure the orderly functioning of the securities market,” it said.
The apex court asked SEBI and other investigative agencies of the Union government to probe into allegations of short selling resulting in loss of investors' value.
In August last year, the market regulator, in a fresh status report, said that it had examined 24 matters in compliance with orders of the top court, adding that SEBI would take appropriate action based on the outcome of the investigations in the Adani-Hindenburg matter.
"Out of the said 24 investigations, 22 are final in nature, and two are interim in nature. As of date, the said 22 final investigation reports and one interim investigation report are approved by the Competent Authority in accordance with SEBI's extant practice and procedures," said the status report filed by the executive director VS Sundaresan of SEBI.
The controversial Hindenburg Research's report, inter alia, alleged that the Adani group of companies has manipulated its share prices, failed to disclose transactions with related parties and other relevant information concerning related parties in contravention of the regulations framed by SEBI and violated other provisions of securities laws.
