Supreme Court forms an expert committee to probe Adani allegations

Sebi told to investigate stock manipulation charges against group

The Supreme Court on Thursday formed an expert committee headed by a former judge to investigate if there was a regulatory failure leading to investor losses after the adverse report by American short-seller Hindenburg Research on the Adani group of companies came out.

Former Supreme Court judge Abhay Manohar Sapre will head the committee.

The committee will comprise former State Bank of India chairman O P Bhatt, retired judge J P Devadhar, Infosys co-founder Nandan Nilekani, banking veteran K V Kamath, and Mumbai-based advocate Somashekhar Sundaresan as other members.

Welcoming the verdict, Adani group head 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 committee has been asked to submit its report in a sealed cover to the court within two months.

“This court noted that a committee was needed for regulatory mechanisms to ensure the safety of investors,” Chief Justice of India (CJI) DY Chandrachud said while delivering the order.

The court said the panel would also probe if there was a regulatory failure in dealing with the allegations against the Adani group or other companies pertaining to the securities market.

“The remit of the Committee shall 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; to suggest measures to strengthen investor awareness; to investigate whether there has been a regulatory failure in dealing with the alleged contravention of laws about the securities market concerning the Adani Group or other companies,” the order said.

The Committee will also suggest measures to strengthen the statutory and/or regulatory framework and secure compliance with the existing framework for the protection of investors, the order added.

The court noted the Securities and Exchange Board of India (Sebi) was already investigating the allegations of Hindenburg Research.

Top court’s directions

• Expert committee to assess factors leading to volatility in the securities market
• To investigate regulatory failure, if any, in dealing with allegations against Adani group and others
• Suggest measures to strengthen the statutory and/or regulatory framework
• Sebi to probe violation of its rules
• And whether there was a failure to disclose transactions with related parties

The Bench, also comprising judges P S Narasimha and JB Pardiwala, said besides its ongoing investigation, Sebi shall probe whether there had been a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957; whether there had been a failure to disclose to Sebi the transactions with related parties and other relevant information that concerned related entities; and whether there was any manipulation of stock prices in contravention of existing laws.

Rule 19A of the Securities Contracts (Regulation) Rules, 1957, talks about the maintenance of minimum public shareholding and its attainment within a specified period.

Samudra Sarangi, partner at Panag & Babu, said: “The Supreme Court has identified important issues that it expects Sebi to look into so that they do not get lost in the larger investigation being done by the regulator ... This positively reflects on the court’s intentions to not only identify key issues promptly but also find solutions to insulate the market from such volatility in future.”

At the order was handed down, Solicitor General Tushar Mehta requested the court to include a line saying that the constitution of the expert committee did not reflect on the functioning of any regulatory bodies.

In reply, the CJI said this had been made clear in the order. “The constitution of the expert committee does not divest Sebi of its powers or responsibilities in continuing with its investigation into the recent volatility in the securities market,” the order stated.

The court asked the regulator to assist the expert committee.

“The Chairperson of the Securities and Exchange Board of India is requested to ensure that all required 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 order said.

The Supreme Court on February 17 said it would not accept the government’s names in committee formation.

Tushar Agarwal, advocate, said: “It is expected this committee will uphold the trust of Indian investors by suggesting measures to strengthen the securities market.”

Abhinay Sharma, managing partner, ASL Partners, said: “Wealth creation is a must for the development of the economy but that should not be at the cost of the innocent investors’ hard-earned money.”