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Supreme Court to deliver verdict on Adani-Hindenburg issue today
The SC will rule on a bunch of petitions, demanding investigation into allegations of accounting fraud and stock manipulation against Adani group companies
The Supreme Court will on Wednesday deliver its judgment on a bundle of petitions, demanding investigation into allegations of accounting fraud and stock manipulation against Adani group companies, published in a research report by US short-seller Hindenburg Research in January 2023.
A bench comprising Chief Justice of India Dhananjaya Y Chandrachud and justices JB Pardiwala and Manoj Misra will also rule on the steps that the Securities and Exchange Board of India (Sebi) ought to take to protect investors by keeping extreme market volatility in check and the tightening of pertinent regulations. According to the list of business published on the court website, the CJI will pronounce the judgment in the case that was reserved on November 24 after conclusion of the arguments.
Hindenburg’s report, published in January 2023, claimed “brazen accounting fraud” and “stock manipulation” by the Gautam Adani-led group. Though the conglomerate rejected the report as “unresearched” and “maliciously mischievous”, it triggered a massive rout of Adani group stocks, which lost over $140 billion in days and forced the cancellation of a ₹20,000 crore share sale.
The Supreme Court on March 2, 2023, set up a six-member panel, led by retired Supreme Court judge AM Sapre, to look into regulatory failure by Sebi and alleged breach of laws by the Adani group. In its report submitted in May, the committee said the allegations of stock price manipulation or violation of MPS norms by Adani group companies cannot be proved “at this stage”. Indian stock market laws require a listed company to have a minimum public shareholding of 25% with the objective to keep a free float available for price discovery of stocks.
At the same time, the panel raised certain red flags regarding the current Foreign Portfolio Investors (FPI) regulations, contending that Sebi, in its legislative capacity, had itself done away with the prohibition against any FPI having an “opaque structure” in 2018 and 2019, which could be a reason why Sebi’s probe to look into possible violation of the MPS norms by Adani companies using 13 overseas entities has “drawn a blank so far”.
In its response to the panel’s report, the Sebi told the court in July last that its Board has approved a proposal mandating additional granular disclosures to the last investor for certain categories of FPIs even as the regulator differed with the panel and said that 2018 and 2019 amendments in fact sought to stiffen the FPI regulations by mandating upfront disclosure of beneficial owners (BO) in all categories of FPIs except government entities.
In its applications submitted to the court, the Sebi informed the bench that it has investigated a total of 24 issues in connection with the Hindenburg report, based on the material available and information that it has received from agencies in foreign jurisdictions. In some of the instances, approvals of the competent authorities were sought, the regulator had informed the court in August while seeking an extension of 15 days to to conclude its investigation. The top court had on May 17 directed the Sebi to complete the probe by August 14.
In September, one of the petitioners in the case, Anamika Jaiswal, filed two separate applications. The first plea alleged that the Sebi had not only concealed several facts about previous investigations against Adani companies, but it also tweaked the regulations to keep the group’s regulatory contraventions and price manipulations undetected. Her second application urged the Supreme Court to reconstitute the panel of experts to investigate the accusations against the Adani group, alleging conflict of interest of three of the six-member panel.
On November 24 when the judgment was observed, the bench observed that It will not be proper for the court to appoint a special investigation team (SIT) to look into alleged violations of MPS norms by Adani group companies without there being evidence of lapses on part of the Sebi, which is already investigating the matter. The court, on the day, remained emphatic that it cannot order a probe based only on certain media reports and without hearing the entities impacted by its orders, adding that a statutory regulator like Sebi cannot be expected to start issuing show-cause notices on the basis of reports published by Hindenburg or by a news organisation such as Financial Times. Both reports cited the alleged violation of MPS norms by Adani group companies using 13 overseas entities.
At one point of the hearing on November 24, the court observed that it has identified four areas, pertaining to the regulatory regime and investors’ protection, where it is inclined to issue further directions to the regulator.
