Opposition won't let probe into Adani stock market crash come up short

Probe into Hindenburg report promises to be government-led, for the moment

For Indians, the summer of 1992 will forever belong to a man called Harshad Mehta. Broker Harshad Mehta siphoned off around Rs 1,000 crore from the banking system to buy stocks on the Bombay Stock Exchange. As he pumped in money, the markets continued to achieve new highs. Retail investors took cues from what Mehta was buying and followed in the footsteps of the ‘Big Bull’. The scam came to light when State Bank of India reported a shortfall in government securities. That led to an investigation that later showed that Mehta had manipulated around Rs 3,500 crore in the system.

On August 6, 1992, after the scam was exposed, the markets crashed 72 per cent, leading to one of the biggest falls and a bearish phase that lasted two years. It was considered one of India’s biggest stock market regulatory failures. At least one senior public servant, M J Pherwani, chairman of Unit Trust of India and National Housing Bank, killed himself as a result.

A market crash led by the fortunes of a prominent business house, following the report of a short-seller, is all that is common between then and now.

Bharatiya Janata Party (BJP) Member of Parliament (MP) and lawyer Mahesh Jethmalani said: “What does the government have to do with this? Nobody has said what the government’s role is in this. Life Insurance Corporation of India is an independent organisation. It has decided to make some investments.”

He said, “If there is any wrongdoing by Adani Group, the Securities and Exchange Board of India (Sebi) and Reserve Bank of India (RBI) will probe it. The demand for a joint parliamentary committee (JPC) probe is not justified.”

However, another lawyer and Congress MP Manish Tewari doesn’t agree.

Tewari says a JPC alone will be able to go into the regulatory lapses that led short-seller Hindenburg Research to make such damning accusations about an Indian business house.

“Where does market capitalism or laissez-faire end and the rule of law commence? This is not a situation where someone has taken a short position in anticipation that the market price discovery would be lower than what the follow-on public offer is. A concrete attempt has been made to drive down the price of the stock by making serious allegations. The question is whether those allegations are true or not… there has to be an impartial investigation to arrive at the truth. If you allow this to go unchecked, then any short seller sitting anywhere in the world will try to rig our market,” says Tewari.

The Congress has set the terms: a JPC or a Supreme Court (SC)-monitored day-to-day enquiry must be ordered into the allegations made by Hindenburg. But MP and Chief Whip Jairam Ramesh tweeted: “The Adani issue does certainly warrant an investigation by Sebi and RBI. Whether that will be truly independent is a separate matter.”

This and subsequent tweets are being interpreted by many in the party as striking a tone different from party President Mallikarjun Kharge who has sought a JPC or SC-monitored probe.

Trinamool Congress (TMC) also has its views about the kind of probe that should be initiated. Two senior members of the TMC — Derek O'Brien and Sudip Bandyopadhyay — attended the Opposition meeting called by the Congress last Thursday when the Hindenburg report surfaced. This was the first time in four years the TMC took part in a meeting called by the Congress. But there is a clear dissonance between Congress and the TMC on the road ahead.

O’Brien and Bandyopadhyay want an enquiry by the Central Bureau of Investigation and the Enforcement Directorate. All O’Brien would say was: “Over 20 Opposition parties are all on board with the strategy to be adopted in Parliament.”

The BJP believes the government has done all it needs to do by asking the Ministry of Corporate Affairs, the RBI, and Sebi to conduct enquiries into the ‘unnatural’ market movements last week.

“This is a very sensitive matter. We have no instructions,” said a former state finance minister from the BJP.

The party is clear that a JPC is not warranted. An SC-mandated probe can only get traction if a petition is filed in court by someone from the Opposition. No such petition has been filed yet.

The probe into the Hindenburg report promises to be government-led, for the moment.