Source: The Hindu

Introduction

Recently a three-judge bench of the Supreme Court consisting of Chief Justice of India (CJI) D Y Chandrachud, Justices J B Pardiwala and Manoj Misra refused to order any inquiry by the Special Investigation Team (SIT) or the Central Bureau of Investigation (CBI) in Hindenburg report of Securities and Exchange Board of India (SEBI).

The court gave this judgment in the case of Vishal Tiwari v. Union of India (2023) also known as Adani-Hindenburg Case.

What are the Facts of the Adani-Hindenburg Case?

• Hindenburg Research Report:
  • On 24^th January 2023, Hindenburg Research, a short-selling firm of the US, released a damning report accusing the Adani Group of manipulating stock prices.
• Denial of Adani Group:
  • The Adani Group vigorously denied the claims with a detailed 413-page response.
• Step Taken by Supreme Court:
  • On 2^nd March 2023, the SC established a committee, including figures like Mr. OP Bhat and Justice AM Sapre, to examine potential regulatory failures.
  • Initially given two months, SEBI sought a six-month extension in May, citing the complexity of transactions.
  • The SC granted an extension until 14^th August 2023, and later allowed an additional 15 days upon SEBI's request.
• Defence by SEBI:
  • SEBI said that it has conducted a significant part of the investigation, but the investigation is not over yet.
• Issue Raised by Petitioner:
  • The petitioner raised the issue related to the delay in reaching a conclusion by SEBI.
  • The petitioner raised concerns about the drastic fall in the securities market, the impact on investors, the purported lack of redressal available and the disbursement of loans to the Adani group allegedly without due procedure.
• Request of Petitioner:
  • The petitioners sought the transfer of the investigation from SEBI to the CBI or a SIT.

What were Major Contentions Provided by Petitioner?

• Hindenburg Report:
  • The Hindenburg Report and certain newspaper reports allege that some Foreign Portfolio Investments (FPI) in Adani group stocks in the Indian stock market are owned by shell companies based outside India, which have close connections with the Adani group.
  • Such investments in Adani stocks allow the Adani group to maintain financial health and artificially boost the value of stocks in the market, in violation of Indian law.
• Organized Crime and Corruption Reporting Project:
  • The investigative findings of the Organized Crime and Corruption Reporting Project, published by two newspapers, indicate price manipulation by the Adani group through two Mauritius-based funds.
    • However, SEBI did not act on such reports.
• Directorate of Revenue Intelligence Report:
  • The Directorate of Revenue Intelligence had addressed a letter dated 31^st January 2014 to the then SEBI Chairperson alerting them about possible stock market manipulation being committed by the Adani group by overvaluation of the import of power equipment.
    • However, SEBI did not take adequate action based on this letter.

What were Major Contentions Presented by SEBI?

• Involvement of Agencies If Required:
  • Twenty-two out of twenty-four investigations being conducted by SEBI are complete.
  • In these investigations, enforcement actions/ quasi-judicial proceedings would be initiated, wherever applicable.
• Directorate of Revenue Intelligence Report:
  • The petitioner’s reliance on the letter by the DRI is misconceived.
  • After having received DRI’s letter, SEBI sought information from DRI on the subject and received a response.
• Organized Crime and Corruption Reporting Project:
  • The OCCRP report relied on by the petitioner lacks documentary support and certain important facts with regard to the source of the report have been concealed.

What are the Conclusions Made by the Supreme Court?

• Competition of Twenty-Two Investigations:
  • SEBI has completed twenty-two out of the twenty-four investigations into the allegations levelled against the Adani group.
  • Noting the assurance given by the Solicitor General on behalf of SEBI, the court directed SEBI to complete the two pending investigations expeditiously, preferably within three months.
• Transfer of Investigation Denied:
  • The SC said that the facts of this case do not warrant a transfer of investigation from SEBI.
  • In an appropriate case, SC does have the power to transfer an investigation being carried out by the authorized agency to an SIT or CBI.
  • Such a power is exercised in extraordinary circumstances when the competent authority portrays a glaring, willful and deliberate inaction in carrying out the investigation.
• DRI’s Report:
  • SC said that the report by a third-party organization without any attempt to verify the authenticity of its allegations cannot be regarded as conclusive proof.
• Word of Caution:
  • Court while concluding emphasized that public interest jurisprudence under Article 32 of the Constitution was expanded by this Court to secure access to justice and provide ordinary citizens with the opportunity to highlight legitimate causes before this Court.
  • It has served as a tool to secure justice and ensure accountability on many occasions, where ordinary citizens have approached the Court with well-researched petitions that highlight a clear cause of action.
  • However, petitions that lack adequate research and rely on unverified and unrelated material tend to, in fact, be counterproductive.