The Supreme Court on Thursday asked the SEBI to probe within two months allegations of stock price manipulation by the Adani group and any lapses in regulatory disclosures, and also set up a panel to look into protection of Indian investors after a damning report by a US short seller wiped out more than USD 140 billion of the conglomerate's market value.
The top court while directing the setting up of a six-member committee headed by former apex court judge Justice A M Sapre for the assessment of the extant regulatory framework and for making recommendations to strengthen the process said it was appropriate to set up such a panel of experts in order to "protect Indian investors against volatility of the kind which has been witnessed in the recent past".
The court-appointed Justice Sapre panel, which will be provided assistance by the Centre and other statutory agencies including the SEBI chairperson, will have to submit its report in a sealed cover within two months, said the bench which comprised Chief Justice D Y Chandrachud and Justices P S Narasimha and J B Pardiwala.
The panel will also suggest measures to strengthen investor awareness, the court said, adding the committee will probe whether there was any regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group or other companies.
Reacting to the court directions, Adani group Chairman Gautam Adani tweeted: "The Adani Group welcomes the order of the Hon'ble Supreme Court. It will bring finality in a time bound manner. Truth will prevail."
The bench took note of ongoing probe by the Securities and Exchange Board of India(SEBI) and said the market regulator has not expressly referred to an investigation into the alleged violation of the Securities Contracts (Regulation) Rules 1957 which provide for the maintenance of minimum public shareholding in a public limited company.
"Similarly, there may be various other allegations that SEBI must include in its investigation," it said, directing the SEBI to also investigate whether there was any violation of the Securities Contracts (Regulation) Rules.
The SEBI will also probe "whether there has been a failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI, in accordance with law", it ordered, adding the probe will also look into whether there was any manipulation of stock prices in contravention of existing laws.
The top court made it clear that the market regulator can also go beyond its directions with regard to the contours of the ongoing investigation. "SEBI shall expeditiously conclude the investigation within two months and file a status report."
Dealing with the details of the court-appointed panel, the 9-page order, penned by the CJI, said SEBI shall apprise the expert committee of the action that it has taken in furtherance of the directions during the ongoing investigation.
The setting up of a panel of domain experts does not divest SEBI of its powers or responsibilities in continuing with its investigation into the recent volatility in the securities market, it added.
"In order to protect Indian investors against volatility of the kind which has been witnessed in the recent past, we are of the view that it is appropriate to constitute an Expert Committee for the assessment of the extant regulatory framework and for making recommendations to strengthen it."
Besides former apex court judge Justice Sapre, the other members of panel are O P Bhat (former Chairman of SBI), Justice J P Devadhar (retired judge of the Bombay High Court), K V Kamath (former head of New Development Bank of BRICS and Infosys Limited), Nandan Nilekani (co-founder of IT firm Infosys and former head of Unique Identification Authority of India) and Somasekharan Sundaresan, a lawyer and securities and regulatory expert.
The scope and ambit of the court-appointed panel will be to provide an overall assessment of the situation including the relevant causal factors which have led to the volatility in the securities market in the recent past.
The panel will suggest measures to "(i) strengthen the statutory and/or regulatory framework; and (ii) secure compliance with the existing framework for the protection of investors", the court said.
"The Chairperson of the SEBI is requested to ensure that all requisite information is provided to the Committee. All agencies of the Union Government including agencies connected with financial regulation, fiscal agencies and law enforcement agencies shall cooperate with the Committee. The Committee is at liberty to seek recourse to external experts in its work," the court said.
The honorarium payable to the members of the Committee shall be fixed by the Chairperson and shall be borne by the Union Government, it added.
The secretary of the union finance ministry shall nominate a senior officer who will act as a nodal officer to provide logistical assistance to the Committee, it said.
The CJI referred to facts of the case and said "the decline in the share price was precipitated by a report published by Hindenburg Research on 24 January 2023. This report inter alia alleges that the Adani Group of companies has manipulated its share prices; failed to disclose transactions with related parties and other relevant information concerning related parties in contravention of the regulations framed by SEBI; and violated other provisions of securities laws."
Referring to the report, the court said that Hindenburg Research has taken a short position in the Adani Group companies through US traded bonds and non-Indian traded derivative instruments. "It is in this background that the present batch of petitions came to be filed," it noted.
On February 10, the top court had said the interest of Indian investors needs to be protected against market volatility in the backdrop of the Adani Group stocks rout and asked the Centre to consider setting up a panel of domain experts headed by a former judge to look at strengthening the regulatory mechanism.
The Centre had agreed to the apex court's proposal to set up a committee, to be headed by a former Supreme Court judge, to go into the regulatory regimes.
SEBI, in its note filed in the top court, had indicated it is not in favour of banning short-selling or sale of borrowed shares, and said it is investigating allegations made by a tiny short-seller against the Adani Group as well as its share price movements.
Till now, four PILs have been filed in the top court on the issue by lawyers M L Sharma, Vishal Tiwari, Congress leader Jaya Thakur and Mukesh Kumar, who claims to be a social activist.
Adani Group stocks have taken a beating on the bourses after the Hindenburg Research made a litany of allegations, including fraudulent transactions and share-price manipulation, against the business conglomerate.
The Adani Group has dismissed the charges as lies, saying it complies with all laws and disclosure requirements.