Allegations of conflict of interest against members of the Expert Committee set up to probe the claims made by Hindenburg were unsubstantiated, the Court said.
The Supreme Court on Wednesday concluded that there was no need for it to take action on the allegations of stock manipulation levelled by US-based shortseller Hindenburg research against the Adani group of companies.
While doing so, the Court asked the Securities Exchange Board of India (SEBI) and the investigating agencies of the Central government to probe whether there was any violation of law in the conduct of Hindenburg Research and other short sellers, which had led to volatility in the Indian securities market and losses to Indian investors.
“SEBI and the investigative agencies of the Union Government shall also enquire into whether there was any infraction of law by the entities, which engaged in short-selling on this occasion. The loss which has been sustained by Indian investors as a result of the volatility caused by the short positions taken by Hindenburg Research and any other entities acting in concert with Hindenburg Research should be probed,” the judgment said.
Notably, one petition on the issue before the Court called for the registration of a first information report (FIR) against Hindenburg Research founder Nathan Anderson and his associates in the wake of their report on Adani and the consequent effect it had on the Indian securities market.
In its 46-page judgment, the Supreme Court recorded SEBI’s submission that short-selling is desirable and essential to provide liquidity in the market and to correct prices of over-valued stocks.
Therefore, SEBI cautioned against imposing strict restrictions on the practice of short-selling. However, the Court recorded a statement made by Solicitor General Tushar Mehta that “measures to regulate short selling will be considered by the Government of India and SEBI.”
As far as the entities who took a short position on Adani stocks following the Hindenburg report, the Court ordered that suitable action shall be taken if any violation of law is found by such short-sellers.
Here are some other key takeaways from today’s judgment:
1. Supreme Court cannot substitute its view or supplant the role of experts such as SEBI
The Court said that it cannot examine the correctness, suitability or appropriateness of policy framed by a specialized regulatory agency in collaboration with experts.
It said it can only examine whether a policy is in line with the Constitution or whether it violates a statutory law or is manifestly arbitrary, the Court added.
“The legality of the policy, and not the wisdom or soundness of the policy, is the subject of judicial review…This Court must be mindful of the public interest that guides the functioning of SEBI and refrain from substituting its own wisdom in place of the actions of SEBI.”
2. No apparent regulatory failure attributable to SEBI
The Court rejected arguments that the SEBI had made amendments to its regulations to make it more difficult to unearth violations of the law, particularly the regulations governing disclosure norms for Foreign Portfolio Investments (FPI) and related party transactions.
The petitioners had alleged that such a move was indicative of SEBI’s failure to act against alleged legal violations by Adani.
The Court found merit in SEBI’s argument that the amendments in question were meant to strengthen disclosure norms by moving from a “disclosure on demand” scenario to an upfront disclosure regime.
It further noted the SEBI’s submission that the difficulty it faces during investigation has less to do with laws in India and more to do with there being different regulations on FPIs in foreign jurisdictions where entities being probed may operate.
The Court also noted that SEBI has completed 22 out of 24 investigations against the Adani Group, which it opined indicated that the markets regulator has not failed in its duties.
The Court also recorded the Solicitor General’s assurance that SEBI would complete its pending (two) investigations “preferably within three months.”
Source : https://www.barandbench.com/news/adani-hindenburg-research-key-takeways-supreme-court-judgment
