In a significant development, the Supreme Court rejected key demands of petitioners seeking to derail the ongoing SEBI investigation into allegations raised by US-based Hindenburg Research.
The pleas claimed the allegations that the Adani Group, considered close to the Modi government, inflated its share prices.
Hindenburg’s report, published in January 2023, claimed ‘brazen accounting fraud and stock manipulation’ by the Adani group.
Though the conglomerate rejected the report as ‘unresearched’ and ‘maliciously mischievous,’ it triggered a massive drop in the share price of Adani Group companies.
The Adani Group saw losses to the tune of over $140 billion in days and the allegations forced the cancellation of a INR 20,000 crore share sale.
In a blow to petitioners, the apex court today dismissed reliance on a third-party report and affirmed faith in SEBI’s handling of the case.
A bench comprising Chief Justice (CJI) D Y Chandrachud and justices J B Pardiwala and Manoj Misra delivered the judgement.
No SIT probe into matter: Supreme Court
The Supreme Court refused to order a SIT probe into the allegations, saying that news reports or data compiled by the Organized Crime and Corruption Reporting Project (OCCRP) could not serve as conclusive proof.
The Government of India and the Sebi is to look into whether there is any infraction of law by the Hindenburg report on short selling and if so, take action in accordance with the law, according to the judgement.
‘The reliance on newspaper articles or reports by third-party organizations to question a comprehensive investigation by a specialised regulator does not inspire confidence. Such reports by independent groups or investigative people by newspapers may act as inputs before the SEBI or the Expert Committee. However, they cannot be relied upon as conclusive proof of the inadequacy of the investigation by SEBI. Nor can the petitioners say that such inputs be regarded as credible evidence,’ LiveLaw quoted the Bench as stating.
‘Since the Supreme Court has taken a view that the report on 20 out of 22 transactions is clear, I think it is a clean chit to Adani definitely, and there is no doubt about that,’ Siddharth Luthra, the advocate of Adani Group, told PTI.
‘The Hon’ble Supreme Court’s judgement shows that: Truth has prevailed. Satyameva Jayate. I am grateful to those who stood by us. Our humble contribution to India’s growth story will continue,’ said, Gautam Adani, Chairperson of Adani Group, in a post on social media platform X.
‘I have not read the SC order in detail but they have directed the Sebi to complete their investigation in two months. The fact remains that the allegations made in the Hindenburg report came into the public space a year ago and if the Sebi had been vigilant or they would have been swift, the investigation would have been completed a long time back,’ said, Congress MP Manish Tewari to PTI.
SEBI Independence Upheld
The Supreme Court also emphasized its limited authority to intervene in SEBI’s regulatory framework. By not intervening in the investigation by SEBI, the Supreme Court has highlighted the importance of independence for autonomous statutory regulatory bodies like SEBI.
The court expressed scepticism regarding reliance on newspaper reports and third-party organizations to question the statutory regulator, considering them as inputs rather than conclusive evidence to doubt SEBI’s probe.
No ground to transfer the investigation from SEBI to SIT: SC
The Supreme Court held that there is no ground to transfer the investigation from SEBI to SIT.
Supreme Court announced no irregularities detected in FPI investments
SEBI had used the term ‘opaque’ to describe the Foreign Portfolio Investment (FPI ) which was misconstrued by the expert committee.
SEBI said the FPI regulations did not prohibit opaque structure and could in fact locate the beneficial owners. mandatory upfront disclosures meant that opaque structure was omitted in 2019, said CJI, as reported by Bar and Bench.
The court dismissed calls for SEBI to revoke amendments on FPI and Listing Obligations and Disclosure Requirements (LODR) regulations, asserting that these regulations were free from any flaws.
Conclusion and way forward for investigation
CJI emphasized that the Government of India and SEBI should have considered the committee’s recommendations to enhance the interests of Indian investors.
CJI concluded by highlighting that while ‘public interest jurisprudence was developed to provide access to ordinary citizens, petitions lacking adequate research and relying on unsubstantiated reports could not be accepted.’
Arguments suggesting a conflict of interest among the Expert Committee members were rejected by the Supreme Court.
The court also directed the Government of India and SEBI to investigate any potential legal violations of the Hindenburg report on short-selling and take appropriate legal action.
Adani Group stocks rise on judgement
Following the Supreme Court’s dismissal of the Hindenburg report on the Adani Group, the share prices of several companies within the conglomerate surged by a combined 18 per cent in the early trading hours of Wednesday.
This surge occurred despite a lackluster market opening for both the Sensex and Nifty.
Adani Enterprises was currently up around 2.5%, though 5.8 per cent below its intraday high. It was the top gainer in the Nifty 50 for a while.
Meanwhile, Adani Ports traded 1.2 per cent higher but 4.5 per cent below its highest point. The stock reached a 52-week high of INR 1,144 per share earlier in the session.
The Supreme Court’s favorable verdict aligns with positive signals from both the Supreme Court committee and SEBI regarding the Adani Group, experts suggested.
Additionally, the US government’s dismissal of allegations on Sri Lanka’s container terminal project and the approval of a $553 million loan further contribute to a promising short to medium-term outlook for investors.
With upcoming elections, the stock market hitting record highs and the anticipation of the 2024 budget, investors have reason to be optimistic.