Adani-Hindenburg row: Supreme Court for expert panel on investors' safety

Seeks Sebi's response on regulatory framework modification

The Supreme Court on Friday asked the Securities and Exchange Board of India (Sebi) to respond by Monday on measures that can be taken to protect Indian investors from instances like the slump in Adani group stocks after a critical report by the American short-seller Hindenburg Research.

A Bench, comprising Chief Justice of India (CJI) D Y Chandrachud and Justices P S Narasimha and J B Pardiwala, asked the markets regulator to give a detailed response on how a strong framework can be put in place to prevent such instances. “It is said the total loss by Indian investors is several lakh crores. How do we ensure they are protected? It is said to be Rs 10 lakh crores. How do we ensure that this does not happen in the future? What role should be envisaged for Sebi in the future?" the Bench asked.

The court suggested an expert committee that could confer wider powers to Sebi.

“One of the suggestions is to have some committee. We do not want to cast any doubt on Sebi or the regulatory agencies. But the suggestion is to have a broader thought process so that some inputs can be obtained. And then the government can take a call as to whether some modification is required of the statute, or whether a modification for the regulatory framework is required. Beyond a certain stage, we won't enter into the policy domain, but there should be a mechanism that such a thing doesn't happen in the future. This is the call that the government has to take."

The court suggested that the committee can have experts from the securities domain and a former judge or an international financial law expert. “We can give a wider role to Sebi and it can analyse powers that exist and how it can be improved since the capital flow will become more seamless,” it said.

"Today there is seamless capital flow. How do you ensure that investors are protected? Everybody is an investor now, small, medium, or big," the CJI asked Solicitor General Tushar Mehta, appearing for Sebi.

Mehta told the court that the epicentre of the issue is beyond India’s jurisdiction. "It is a little premature for me to immediately answer. The trigger point was the (Hindenburg) report, which was beyond our territorial jurisdiction. Some regulations deal with the concerns. We are also concerned,” he said. The Solicitor General assured the court that the market regulator is closely monitoring the situation.

The apex court suggested the SG can have a consultation with experts from the Ministry of Finance.

“Give us a framework. This is just loud thinking. We are conscious that whatever we say may also affect the stock market. It runs largely on sentiments. So we are cautious", the CJI said.

At the outset, the Bench dictated the order: “We have indicated to the Solicitor General the concerns with regard to ensuring that the regulatory mechanisms within the country are duly strengthened to ensure that Indian investors are protected against certain volatility, the kind of which was witnessed in the recent two weeks. That, in turn, would require due assessment of existing regulatory framework and the need for strengthening regulatory framework in the interest of the investors and the stable operations of the securities market.”

The Bench also told the SG that if the Union government is inclined to accept the suggestion of the constitution of an expert committee, necessary submissions can be made in that regard.

The court was hearing the petition seeking a direction to the government to form a committee headed by a retired Supreme Court judge to probe Hindenburg Research’s report. The court posted the matter to Monday (February 13) and asked Mehta to get back after instructions from the Union government.

Advocate Vishal Tiwari, who has filed the petition, mentioned the matter on Thursday for an urgent hearing before the Bench headed by the CJI. Tiwari told it that another plea, on the same issue, was scheduled for a hearing on February 10.

“A similar petition is coming up tomorrow (Friday). This pertains to the Hindenburg Research report, which has tarnished the image of the country and caused the loss,” he told the Bench. He urged the bench to tag his plea, along with the other one on Friday.

“All right. Tag it,” the CJI said.

Tiwari’s public interest litigation (PIL) sought the court’s directions to set up a special committee to oversee a policy for sanctioning loans of more than Rs 500 crore given to big corporations.

The other PIL was filed last week by advocate M L Sharma, seeking prosecution of Nathan Anderson of Hindenburg Research and his associates in India and the US for allegedly exploiting investors and the "artificial crashing" of the Adani group’s stocks.

Adani group stocks’ value plummeted after Hindenburg Research made a slew of allegations against the conglomerate, which included fraudulent transactions and share-price manipulation. The Adani group has rejected the allegations, saying it complies with all laws and disclosure requirements.

The Centre, the Reserve Bank of India, and the Securities and Exchange Board of India have been made respondents in Tiwari’s plea.