Adani case: SC refuses plea for SIT; asks Sebi to finish probe in 3 months

Reliance on third party organisation report without any verification cannot be relied upon as a proof, says court about investigative journalists' work

The Supreme Court on Wednesday said there was “no ground” to transfer the Securities and Exchange Board of India’s (Sebi’s) investigation into allegations against the Adani group by US-based short-seller Hindenburg Research either to a special investigation team (SIT) or the Central Bureau of Investigation (CBI). It further directed the markets regulator to conclude its remaining two investigations in the matter within three months.

The court also asked Sebi and the central government to investigate whether “the loss suffered by Indian investors due to the conduct of Hindenburg Research and any other entities in taking short position involved any infraction of law”.

Disposing of a bunch of pleas seeking a third-party investigation into allegations of accounting fraud and stock manipulation levelled by Hindenburg Research, a three-judge Bench of the apex court comprising, Chief Justice D Y Chandrachud and Justices J B Pardiwala and Manoj Misra, said Sebi was conducting a “comprehensive investigation” and its conduct “inspires confidence”.
 

In its 46-page verdict, the Bench further said: “Sebi has completed 22 of the 24 investigations into the Adani group. It submits that the remaining two are pending due to inputs being awaited from foreign regulators. We also record the assurance given by the solicitor general on behalf of Sebi that the investigations would be concluded expeditiously. Sebi cannot keep the investigation open-ended and indeterminate in time. Hence, Sebi shall complete the pending investigations preferably within three months.”

The court said there is no valid ground raised to direct Sebi to revoke its amendments on the FPI (foreign portfolio investment) and LODR (listing obligations and disclosure requirements) regulations.

A petitioner in this case had told the court that the markets regulator must be directed to revoke amendments to the FPI Regulations, which have done away with restrictions on opaque structures. In addition to this, the petitioner had requested that Sebi must be directed to revoke the amendment made to its LODR Regulations, which have altered the definition of “related party”.

“We find that the prayer seeking directions to Sebi to revoke its amendments to the FPI Regulations and LODR Regulations must fail,” said the Bench.

After the verdict, Gautam Adani, chairman of the Adani group, posted on X: “The Hon'ble Supreme Court's judgement shows that: Truth has prevailed. Satyameva Jayate. I am grateful to those who stood by us. Our humble contribution to India's growth story will continue. Jai Hind.”

Delivering its verdict, the apex court Bench observed that reliance placed by the petitioners on newspaper articles or reports by third-party organisations like the Organized Crime and Corruption Reporting Project (OCCRP) to question a comprehensive investigation by a specialised regulator does not inspire confidence The OCCRP is a global network of investigative journalists; its report alleged stock manipulation by the promoters of the Adani group.

“The reliance on the OCCRP report is rejected and reliance on a third-party organisation report without any verification cannot be relied upon as proof...There is no ground to transfer the probe in this case from Sebi,” it said. “They (newspaper reports) can be treated as inputs but not conclusive evidence to doubt the Sebi probe.”

A petitioner had also alleged that Sebi was lackadaisical in its investigation relying on the letter sent by the DRI (Directorate of Revenue Intelligence) in January 2014 alerting the Sebi chairperson about possible stock market manipulation being committed by the Adani group by overvaluation of the import of power equipment. The court dismissed the allegation saying that the “petitioner is re-agitating an issue that has already been settled by concurrent findings of the DRI’s additional director general, the CESTAT (Customs, Excise and Service Tax Appellate Tribunal), and this court”.

It also rejected petitioners’ arguments about conflict of interest on the part of the members of the Supreme Court’s expert committee set up to investigate the Adani-Hindenburg matter. It further asked the government and Sebi to take into consideration the recommendations of the expert committee to strengthen the interest of the Indian investors.

Earlier, advocate Prashant Bhushan, appearing for one of the petitioners, had told the court that Sebi’s conduct in the matter was not credible. The court then said that the securities market regulator cannot be asked to go by what the media has to say on the subject.

In January 2023, Hindenburg Research came up with a report accusing the Adani group of improperly using offshore tax havens and flagging concerns about high debt. It also alleged that there was “brazen stock manipulation” using offshore shell companies.

In a statement on the judgment and Adani’s reaction, Congress General Secretary in charge of communications Jairam Ramesh hit out at Adani, saying “truth dies a thousand deaths when we hear Satyameva Jayate from those who have gamed, manipulated and subverted the system this past decade”.