Adani Hindenburg row- SC refuses to transfer Adani’s case from Sebi

Adani Hindenburg row: SC refuses to transfer Adani’s case from Sebi

In a reprieve to the Adani Group, the Supreme Court on Wednesday refused to transfer the investigation currently being carried out by the Securities and Exchange Board of India (Sebi) to a separate Special Investigation Team (SIT). The verdict prompted Adani Group Chairman Gautam Adani to tweet – “Truth has prevailed.”

Stating that its power to enter the regulator’s domain was “limited,” the apex court asked Sebi to conclude its investigation into the allegations by US-based short-seller Hindenburg Research within three months.

“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,” court said in its judgment.

The SC also said that “no valid grounds” were raised for the court to direct Sebi to revoke its amendments to foreign portfolio investors and listing regulations as the procedure followed in arriving at the current shape of the regulations does not suffer from irregularity or illegality.

On Wednesday, shares of all 10 listed Adani Group companies ended up on BSE, with Adani Energy Solutions closing the highest at 11.60%, followed by Adani Total Gas at 9.84%, Adani Green Energy at 6% and Adani Power at 4.99%. The group’s market cap rose by 11% or Rs 64 189 crore. The overall market capitalisation of the group stood at Rs 15.1 trillion, showing a recovery of Rs 8.3 trillion from the lowest level of February 27.

Sebi has completed 22 out of the 24 investigations into the allegations levelled against the Adani group, the bench said, directing the regulator to complete the two pending investigations “expeditiously,” preferably within three months.

“In an appropriate case, this court does have the power to transfer an investigation being carried out by the authorised agency to an SIT or CBI,” it said, adding, such power is exercised only in extraordinary circumstances when there are “glaring, wilful and deliberate inaction in carrying out investigations”.

The apex court also asked Sebi and investigative agencies to probe into the loss suffered by Indian investors due to the conduct of Hindenburg Research, or any other entities taking short positions. “If so, suitable action shall be taken,” it added.

It also said that reliance on newspaper reports and Organised Crime and Corruption Reporting Project, which it termed as a third-party organisation, cannot be regarded as “conclusive proof”.

“The OCCRP report relied on by the petitioner lacks documentary support and certain important facts with regard to the source of the report have been concealed,” it added.

The court also urged the government to implement an expert panel’s recommendations to bolster the regulatory framework. But it didn’t go further, drawing a line, at least domestically, under the year-long saga.

Shriram Subramanian, founder and managing director of InGovern Research Services, termed the ruling as “good for Adani as the matter is out of the SC now and the petitions have been dismissed.”

“The Supreme Court was categorical that all securities matter investigations need to be dealt by Sebi and, in this case, Sebi investigations are on. The ruling that Sebi and other investigative agencies should not rely on external research reports in their investigations is also important,” Subramanian added.

Sakate Khaitan, Senior Partner at Khaitan Legal Associates, said the judgement would come as a relief to the Adani group, indicating that other than the current ongoing investigations, there need not be additional scrutiny at the moment; thus, building the investor confidence. “However, he said, the ultimate outcome of the Sebi inquiry will determine if the storm is finally over for the Adani group.”

Sandeep Parekh, managing partner at Finsec Law Advisors, said the Supreme Court ruling has found the Sebi investigation is as per the procedures, and there were no grounds to interfere in the regulator’s actions or to transfer the case to CBI or SIT”.

A January 24 report by US-based short-seller Hindenburg Research had accused Adani Group of significant governance issues, which shaved half of the group’s market capitalisation.