Adani-Hindenburg Case: No Ground to Transfer SEBI Investigation, Says SC

NEW DELHI: The Supreme Court on Wednesday junked pleas to transfer the probe into the allegations of stock price manipulation and accounting fraud by Adani Group, as claimed by American short-seller Hindenburg Research in January last year, to a special investigation team and directed market regulator Sebi to complete its probe into two pending cases within three months.

Holding that the power of the apex court to enter the regulatory domain of Sebi in framing delegated legislation is limited, the bench led by Chief Justice of India D.Y. Chandrachud said, “The court must refrain from substituting its own wisdom over the regulatory policies of Sebi. The scope of judicial review when examining a policy framed by a specialised regulator is to scrutinise whether it violates fundamental rights, any provision of the Constitution, any statutory provision or is manifestly arbitrary.”

The CJI-led bench, also comprising Justices J.B. Pardiwala and Manoj Misra, said, “No valid grounds have been raised for this court to direct Debi to revoke its amendments to the FPI (Foreign Portfolio Investors) regulations and the LODR (Listing Obligations and Disclosure Requirements) regulations that were made in exercise of its delegated legislative power.”

The term delegated legislation or secondary legislation refers to laws made by individuals or bodies authorised by the legislature to create detailed regulations under a specific act of Parliament.

“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,” the bench said.

Sebi has completed twenty-two out of the twenty-four investigations into the allegations levelled against the Adani group. “Noting the assurance given by the solicitor-general on behalf of Sebi, we direct Sebi to complete the two pending investigations expeditiously, preferably within three months,” it said.

This court has not interfered with the outcome of the investigations by Sebi. Sebi should take its investigations to their logical conclusion in accordance with the law, the top court said.

“The facts of this case do not warrant a transfer of investigation from Sebi in an appropriate case, but this court does have the power to transfer investigation being carried out by the authorised agency to an SIT or the 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,” the apex court said in its 46-page order authored by the CJI.

The bench said reliance placed by the petitioners on newspaper articles or reports by third-party organisations like the Organised Crime and Corruption Reporting Project (OCCRP) to question a comprehensive investigation by a specialised regulator does not inspire confidence.

“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,” it said.

Further, the petitioner's reliance on the letter by the Directorate 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 allegations of conflict of interest against members of the expert committee are unsubstantiated and are rejected,” the court noted, adding that the Union government and Sebi shall constructively consider the suggestions of the expert committee and take any further actions as are necessary to strengthen the regulatory framework, protect investors and ensure the orderly functioning of the securities market,” the top court said.

It said Sebi and the investigative agencies of the Union government shall 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.

“Before concluding, we must observe that public interest jurisprudence under Article 32 of the Constitution was expanded by this Court to secure access to justice and provide ordinary citizens with the opportunity to highlight legitimate causes before this court. It has served as a tool to secure justice and ensure accountability on many occasions, where ordinary citizens have approached the court with well-researched petitions that highlight a clear cause of action. However, petitions that lack adequate research and rely on unverified and unrelated material tend to, in fact, be counterproductive. This word of caution must be kept in mind by lawyers and members of civil society alike,” the bench cautioned.

The bench also expressed gratitude to all the members and the chairperson of the expert committee for their time, efforts and dedication in preparing their erudite, comprehensive and detailed report in a time-bound manner.

“Subject to the consent and availability of the members and chairperson of the expert committee, Sebi and the government of India may draw upon their expertise and knowledge while taking necessary measures pursuant to the recommendations of the committee,” it added.

The judgment was delivered on public interest litigations filed by lawyers Vishal Tiwari and M.L. Sharma, Congress leader Jaya Thakur and activist Anamika Jaiswal.

The Adani Group stocks suffered a bloodbath on the bourses after Hindenburg Research alleged fraudulent transactions and share-price manipulation against the behemoth.

Dismissing the allegations as lies, the Adani Group had said it complied with all the laws and disclosure requirements.